Futures and Options: Gain from the rising markets with limited risks

Many investors are hesitating to enter the markets as they fear that markets have risen to very high levels. Any correction from here can severely dent their portfolios. Since the broad trend is positive, we feel investors should use all weak days in the market to accumulate quality stocks. A simple way of buying into the market and keeping your investments relatively safe is to restrict your investments to large cap stocks which are part of Nifty or Sensex. These stocks do not fall as severely as mid cap stocks do when the markets correct. Moreover it is possible to hedge a large cap portfolio using Nifty Futures and Options. In the Indian Context the F & O market is generally used for speculation. This is mainly because very few investors understand hedging techniques specially using put and call options. For instance a large cap portfolio can be effectively hedged by either shorting some Nifty Futures when the volatility increases. However a safer and more effective way of hedging your portfolio is buying put options or selling call options of Nifty. At this stage understanding of how options, in particular Nifty options, can protect the downside risk to your portfolio is extremely important for all discerning investors.