Encyclopedia5 min read
Hedging with Index Options
Protect portfolio or short option books with offsetting puts, calls, or spreads — basics for Indian traders.
Why Hedge
Hedging reduces directional or volatility risk — buying puts against long equity, or futures against short gamma. Cost is premium or margin; benefit is survival through gaps.
Retail option sellers should hedge tail risk — not rely on 'it won't gap'. Index puts are common macro hedge.
Common Hedges
Link option selling and risk management.
Frequently Asked Questions
- Who is this guide for?
- Nifty and Bank Nifty option traders who want structured education around chain reading, OI, and risk — not signal tips.
- Can I trade from this article alone?
- Use it as education paired with live analysis on OptionTools. Paper trade or size down while validating ideas.
Key Takeaways
- Hedges are insurance — expect cost.
- Short gamma without hedge is tail risk.
- Match hedge size to book exposure.
Related Articles
- Option Selling Explained: Income, Margin, and Tail RiskHow selling (writing) options works — theta collection, margin requirements, and why naked selling destroys accounts without discipline.
- Risk Management for Option Trading: Size, Stops, and SurvivalConcrete risk rules for Nifty and Bank Nifty option traders — per-trade risk, daily loss limits, margin awareness, and when to stop trading.
- Delta: Directional Sensitivity in Option TradingWhat delta measures on Nifty and Bank Nifty options, how it changes with spot, and why delta matters for intraday P&L.