At Rs 218 I Bought IDFC Stock Future for Upward trend my broker says but put at 230, How to play both ?

Question

He says Always buy "PUT" when you buy " FUTURE" to hedge the position. Can you give me ideas how to play this ?

Answer 1

The combination of a long future and a long put is a "synthetic long call" on the future. That means that instead of buying both the future and the put, you could get the same risk/reward by simply buying a call option with the same strike price and expiration as the put option.

While the risk/reward of a synthetic long call and a long call are the same, the risk/reward for a long future is quite different.

The long future will show a profit if the price of the future goes up any amount. The (synthetic) long call requires a large move in the price of the future to show a profit.

The maximum amount you can lose from a (synthetic) long call is much less than the maximum amount you can lose with an unhedged long future position.

If you do not understand this I strongly recommend you learn more about trading derivatives before risking real money trading them. There are risks that are not always obvious.

Answer 2

it works when ur not sure trend

to get maximum profit with min loss

if up profit in fut, if down in option

risk of put premium only

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