Here, we're trying to hedge the equity portion of our portfolio against a market sell-off. An investor having a portfolio of scrips can use index futures in an attempt to reduce his portfolio risk. This involves simultaneously buying and selling two contracts of the same type and price, but with different delivery dates. This figure takes into account the 0. All index options are cash settled, which makes the position easier to manage around expiration. Suppose the Nifty spot is at and the two month futures are at and suppose the transactions costs involved are 0.
Trading Opportunities in Equity Index Futures. Also available in | | | Another possible trading strategy is an index spread. A spread is the simultaneous purchase and sale of two futures contracts. An index spread is a common and effective trading strategy. The strategy is designed to express the relative value between index contracts.
Different Strategies of Index Trading :
This involves simultaneously buying and selling two contracts of the same type and price, but with different delivery dates. These spreads are popular in the grain markets due to the seasonality of planting and harvesting.
For example, you could sell the July contract for corn and at the same time buy the December contract. With this type of spread, you buy and sell different but often related contracts, usually with the same expiration month. You could trade an intermarket spread, for example, by simultaneously buying hard red winter wheat and selling soft red winter wheat or vice versa, depending on market conditions.
These are also called inter-commodity spreads. This is any type of spread in which each position is created in a different futures exchange. Strategies By Investopedia Share. A Brief History Futures Fundamentals: The Players Futures Fundamentals: How To Trade Futures Fundamentals: Long and Short Trades Trades can be entered in two different directions, depending on where you expect the market to go.
There are several different types of spreads, including: Writing bull put credit spreads are not only limited in risk, but can profit from a wider range of market directions. CFD versus Spread Betting investment products, which offer significant market exposure with a small initial deposit. Commodity spread betting is a way to speculate on price movements of various commodities. Here's how it works. In a bull put spread, the options trader writes a put on a security to collect premium income and perhaps buy the security at a bargain price.
The spread ratio is defined as the notional value of one index future divided by the notional value of another. A portfolio manager PM believes the tech sector is at risk versus the broad market. This comes to 0. Applying the spread ratio of 0.
At this point, the trader believes the valuations have normalized. Now, he simply unwinds the spread by executing orders opposite to the original trade. Sign In Sign Up. Return to Course Overview. What is an Index Future? The Importance of Depth Volume. Who Uses Equity Index Products? What is Equity Index Basis? Rolling an Equity Position Using Spreads. Trading Opportunities in Equity Index Futures.
Futures traders try to predict what the value of an underlying index or commodity will be at some point in the future. Speculators in the futures market can use different strategies to take. Achieving Social Mandates with CME Equity Index Futures Learn how trading a combination of E-mini S&P index futures can synthesize investment strategies that restrict exposure to the energy sector. Equity and Equity Index Derivatives Trading Strategies – Questions and Case Studies Equity Index Futures Strategies 18 Introduction to Equity and Equity Index Options 20 topics of the brochure “Equity and Equity Index Derivatives – Trading Strategies.