In this tutorial, we are going to learn how to reduce the risk in a bearish strategy at the same time effectively use the margin using (Hedged Bear Put Spread). Currently Nifty is trading around 11200 levels in spot and expiry is around the corner. However Nifty hits the major supply zone (Resistance zone) 11000-11400 as shown below where institutional selling pressure is expected at higher prices.
Nifty CMP : 11202.85 ( as on 29th July 2020 Closing)
If you are very new to price action based studies it is recommended to start with the free course to get some of the basics of Institutional Orderflow and Price action.
Trading Sentiment on wednesday trading session turned negative which could be the starting point of short term correction with positional sell side odds.
As you are well aware bear call spread is one of the low risk trading strategy that can be practiced when the market expectation is on the downside. And for the downside target one can use the recent freak low around 10800 levels.
With the given scenario one can go with Bear Put Spread hedged with OTM Call Options to defend the upper range 11400 levels.
Strategy : Bear Put Spread + Sell OTM Call (Hedge to offset the time decay)
Sell 2 Lots of 10800PE – 06th Aug 2020 Expiry – Rs28
Buy 2 lots of 11250PE – 06th Aug 2020 Expiry – Rs 151.05
Sell 1 lot of 11500CE – 06th Aug 2020 Expiry- Rs 37
When to Execute this trading strategy.
If price holding below 11250 levels or even starts accepting below 11200 levels in the upcoming sessions.
When to Exit?
Exit on Target 10800 levels (Freak Low)
Exit on Stops 11500 levels
Strategy is designed to protect the downside loss upto 11500 levels. Risk will accelerate beyond 11500 levels.
Max loss up to 11500 levels till holding 06th Aug Expiry – Rs15645/- per set
Max Returns Possible : Rs51,855/-
Total Margin Required : Rs 1,59,000 (approx)
What if Scenario on Expiry
Update on 3rd Aug 2020 – Adjustment on the Hedge side to capture more theta.
Rolling down the hedge of short 11500CE to 11300CE as 11300 is considered as resistance for this week and to capture some more theta.
Closing the Bearish Position in NF for 27.9K gains Time 12.45p.m – Date 3rd Aug 2020