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The stock market is an ocean of opportunity, only if you know which fish to catch. Trading in derivatives is also a broad aspect for which you are required to undergo proper training. You must apply various derivatives hedging strategies to trade in the derivatives segment, like using bait for fishing. The right strategy will always help you gain profit Derivative Market. Let's learn about Equity Derivatives Trading Strategies involving options
Derivatives Trading Strategies | Trading Strategies in Derivative Market | Derivatives Options Hedging Strategy
What are Derivatives and Types of Derivatives Trading Strategies?
A derivative is a contract between two or more parties to sell or buy the underlying asset. The asset derives its value from the underlying asset. Stocks, Commodities and currencies are the widely used financial instruments in the derivative segment of the stock market. These derivatives are traded on an exchange or over the counter. They can be exchanged or traded via Future, forwards, options and Swaps.
The main purpose of using the Equity derivatives is to achieve enhanced benefits compared to the underlying assets buying price. They can also be used for hedging purposes.
We have seen what derivatives are and why they are used. To continue further, we shall see Derivatives Trading Strategies. There are many choices like forwards and options, but each has several Hedging and Trading Strategies in Derivative Market involving options.
Different strategies for different purposes and underlying assets exist to implement and fulfill your goal. The strategies such as Equity Derivatives Hedging Strategies are used to hedge the funds; Derivatives Options Strategies are used for trading via options. Equity Derivatives Trading Strategies are used when you are trading in equity. We shall see only a few strategies used for every above scenario because there are more than 200 Hedging strategies for different assets and derivative market conditions in India
Proven Derivatives Options Strategies that Works
We all know that there are two types of options contracts call and put.
Buy call option strategy : This is the most basic option strategy the investor uses. When the traders or investors feel that the underlying asset's price will rise and they have the potential to profit, they implement a long call strategy.
The Buy Put option strategy : It is the opposite of the long call options strategy. If traders believe that the stock price will decline in the future before the expiry of contracts, then they implement this Derivatives Trading Strategies in India
Apart from the above mentioned, there are covered call strategy, married put strategy and numerous more. These are just the starters to make you understand Derivatives Options Strategies in derivative market
Let us See Most Useful Derivatives Hedging Strategies
As we initially said that derivative contracts could be used to hedge the funds. Here you will find the most commonly used Derivatives Hedging Strategies and Equity Derivatives Trading Strategies involving options
Future contracts are the contracts between the two verified parties for selling or buying the underlying asset at a predetermined price on an agreed date.
Forwards Contract : These are also a type of contract but are not regulated. They execute the same as other contracts on a specific price and date and can have the underlying asset such as currencies, commodities, etc.
Money markets : This is the market where selling, short-term buying, lending money, and such activities are carried out.
How are these Derivatives Trading Strategies created? Or how can you differentiate between them, which one to use for what? We have answered your question in the simplest way we can.
Trend Following strategies : As the name suggests, these strategies follow a particular trend. They tend to move in a particular direction. Traders profit from the big swing in the direction of the trend and thus can lead to significant profits. However, their winning rate is low.
Momentum strategies : These Hedging strategies in derivative market are implemented when the movement is accelerating; sometimes, breakouts are also used to capture the movements. One of the examples of Momentum's strategy is range expansion. In the range expansion strategy, you get a fast and strong movement in the underlying asset during a day greater than any other typical day. You either buy or sell according to your position.
Mean-reversion strategies : The basis of these Derivatives Trading Strategies is the idea that the price has a long-term average and it may revert anytime. So, use indicators such as Bollinger bands, RSI, and many others to identify whether the stock is overbought or oversold. If the price is overbought, traders go for a long position; if it is oversold, traders take the short position in the Derivative market.
This was the brief idea of Derivatives Trading Strategies involving options. If you want to learn Hedging and Trading Strategies in Derivative Market using any of the methods mentioned above, you can reach us at 9909978783.
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