2 Years Profitable Option Hedging Strategy
2 Years Profitable Option Hedging Strategy
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Welcome to an exciting deep dive into a sophisticated yet accessible options trading strategy that combines the power of futures with the safety net of an in-the-money (ITM) put option! In this video, we’ll unpack a trading approach that has delivered an impressive profit of Rs 107,259 over a two-year backtest period, requiring an approximate capital investment of just Rs 60,000 per trade. Whether you’re a beginner looking to expand your trading knowledge or an experienced trader seeking a reliable strategy with built-in risk management, this video is tailored for you.
Our featured strategy involves buying a future and simultaneously buying a put option that is 100 points ITM, both aligned for the same expiration month and lot size. We’ll explore how this combination leverages market upside while protecting against downturns, using a live example of buying a future paired with a 19800 PE (put option) on a monthly expiry. Plus, we’ll reveal insights from a two-year backtest that validates its profitability. Ready to elevate your trading game? Let’s dive in!
Buying a Future Contract: A futures contract obligates you to buy (or sell) an underlying asset—like an index such as Nifty—at a predetermined price on a specified future date. By going long on a future, you’re betting on the market moving upward, amplified by the leverage futures provide.
Buying a 100 Points ITM Put Option: A put option grants you the right (but not the obligation) to sell the underlying asset at a specified strike price before or at expiration. “In-the-money” (ITM) for a put means the strike price is higher than the current market price. Here, we select a put option with a strike price 100 points above the current index level, offering immediate intrinsic value and a cushion against declines.
Both positions are executed for the same expiration month (e.g., monthly contracts) and the same lot size, ensuring symmetry in exposure. For instance, if you trade the Nifty index with a lot size of 50, both the future and the put option cover 50 units of the index.
Live Example:
Current Nifty Index: 19,700
Future Buy: Enter at F = 19,700 (future price ≈ spot price, ignoring minor cost-of-carry differences for simplicity).
Put Option: Buy the 19,800 PE (strike K = 19,800), which is 100 points ITM (19,800 - 19,700 = 100).
*Disclaimer : This video is only for educational purposes, based on research, own experience, case studies and other sources. It is not created with an intent to harm and injure any person or company. Share market is very risky if you do anything after watching this video will have their own risk and responsibility; The Stockan Youtube Channel does not take responsibility for any damages arising directly or indirectly from any actions taken based on this video.
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