Biggest dilemma is derivative used for hedging or investment avenues?

Welcome back again for new post regarding derivative use.....

Derivative as a hedging instrument.....

Insurance is used for hedging of lives of people same way use of derivative started to protect portfolio in case of opposite  move.

Life of people and portfolio uncertainty  always goes hand to hand. No matter how we are healthy we can't guarantee for next day, same way our portfolio should be protected or covered through derivative use as market need not any reason to fall. For going up market requires 100 of reason but to fall market a small excuse satisfied condition of falling market.

To precise hedging concept of derivative, real investor should always take insurance of derivative by paying premium or earn premium in case investor hold enough portfolio size.

Example. Mr x hold 1000 shares of Titan Ltd and planning to hold forever. But system risk with titan company can't migrate easily without taking proper hedging. To hedge risk of 1000 shares of titan one can buy put option of titan 5-10 % far from current market price. Same way person can sell 5-10% far call to earn interest of investment.

Point to notify.....

Don't sell call during result announcement, or any announcement from govt regarding gold duty or such related matter who are most favoured.

Same time hedge portfolio through put buy during uncertainty regarding result period or few announcement where  adversely  affect business of titan.

So, genuine investor can use hedge as professional way not for betting. To hedge portfolio is art and to ignore concept of hedging is foolishness as once adverse movement on stock might take 1-2-5 years to reach back same amount. Those days gone when blind investment made 50-100x without any due diligence. Better to safeguard our self.

Derivative as an investment avenues.....

Many times we use to buy lottery ticket to check our fortune and end up with hopeless talk. It is human tendency where people always dream to be millioners in one day or night by buying such betting, route may be lottery ticket, playing cards, crypto or casinos etc

But point of investment is concern it is altogether different from playing on fortune and investment.

I also believe market earning is 1% with luck but 99% favours hard work and timing of people.

Many of us always experience  that once we buy any stock or any position we start to move in negative even people talk the stock was waiting for me to enter and now I am running in loss. Why?

Here, the difference is lies whether we haven't study anything before investment or we bought based on others tip or view. Most of us end up with failure.

Let us more talk on derivative as an investment Avenue .....

Try to investment at big event when announce result can move market very big.

Example: I did investment in BHEL during last election bought call option of BHEL by investing 5000 rs. I square up my call position at 80,000 rs. And my position reach at 1,32,000 at one point of time. Here, I bought an insurance for event in case if nothing happen during outcome of 2014 election maximum i will lose 5000.

One can try to investment in weekly expiry option of bank nifty every week without break. In 6-10 months once favored move enough to survive for next entire year.

I have made many time 10-20x by investing small amount each week and made decent gain.

Never buy future lot if one doesn't have full lot amount or in future one confident to receive entire amount.

Used spread strategy to earn regular income from derivative here most safe and great strategy where loss and profit both certain and same way margin amount doesn't require much. Even one can hedge through cash amount of stock.

Many high net worth investor do short strangle  every months to earn premium regularly. When position goes adversely  they use to rollover  for few months

For small investor having blue chip stock can short nifty call in initial week of expiry month.

Try to buy call option when few specific company news about to come. Example. Buy call option when cigarette  rate going to up buy ITC call with small amount. Mostly budget time such news discuss.

We can say derivative investment is based on opportunity  and always take calculated risk mostly 2-5% of portfolio size.

Here, we can conclude  that for someone derivative is hedging instrument  while for big corporate it could be investment Avenue. As many brokerage  house do trading in option aggressive by employing people having knowledge. While for retail investor it can be nothing but opportunity option.

Thanks

Derivativelearn