@nithin With budget around the corner and with all the news on Corona Virus, I fear that markets might go down the next few weeks. I don’t want to sell my shares, is there any other way to hedge my equity portfolio?
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If what you fear is an overall market risk and not stock specific, you can hedge your portfolio by shorting Nifty futures.
How much futures to short?
We just launched our portfolio analytics feature. Check this.
Click on Insights and you can see the portfolio beta of your direct stock holding.
Beta indicates how much your portfolio is likely to change for any change in the overall market. Since overall market for us is indicated by Nifty, a beta of 1.24 for the portfolio in this example, means that for every 1 point change in Nifty your portfolio (Rs 6lks in this example) is likely to change by 1.24 points.
You can read more about Beta and portfolio hedging on Varsity. If you don’t already have knowledge of F&O (Futures and Options), it is best to first learn before trying to actively use it for hedging.
So what this means is that if I have a portfolio of Rs 6lks with a beta of 1.24, and if I am worried about general overall market risk due to budget or other potential bad news, I need to short Rs 7.2lks (6 x 1.24) of Nifty. Nifty is a contract of around Rs 9lks (75 lot size and Nifty around 12000), so I can short 1 lot of Nifty futures.
If Nifty fell say 500 points during the month, your futures positions will gain Rs 37500 and cover for your portfolio losses. But what you have to keep in mind is that if Nifty moves up, the stock portfolio will make profits but the futures positions will start making a loss.
Hope this helps,
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Is the forecast and other reasearch provided in house from Zerodha or outsourced from another company.
It is from tickertape which is part of smallcase.
I will be selling 2x CE 200 points away tomorrow afternoon after 3:15 pm for my 1 lot of nifty equivalent of ELSS portfolio.
If Budget is negative, I will make some money from 2x CE.
If budget is positive, I will lose money in options but gain in my portfolio.
Will keep adjusting my positions as the market gives a trend.