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Market Storm Coming? Learn to Shield Your Equity Portfolio with Index Options
Right now Market corrections are going on in India and Stock Market is nearly down by 10%. Some Stocks have corrected as much as 40% to 50%. But, my portfolio is not down in fact it has surged by 5% in last 3 months. This I will attribute to 2 factors
- My stocks not correcting by as much as other stock or NIFTY50.
- Me hedging my position which took care of downside move.
The scope of his article is to discuss the second point.
Problem:
If the overall market is Bearish then what should be the optimum number of Put Options Contract that needs to be purchased to offset any losses.
Example : Suppose my Portfolio size is of Rs 40,00,000. And I expect the market to go down by 1000 points and my stock Beta is 1.2 (The stock is 20% more volatile than Nifty50 Index. This number you can easily get from your trading platform dashboard or even calculate using historical data)
Concept Used :
Beta-adjusted Delta Hedging
- Beta Hedging Concept:
- Beta measures your portfolio’s sensitivity to market movements
- A beta of 1.2 means your portfolio is 20% more volatile than the market
