ganeshji,
strike price points to be used for hedging should be such
that u strike a balance between
- the premium u pay (keep it minimum)
- the movement (delta) of option viz. a viz. movement in spot. otherwise hedge won't be effective.
- ur confidence in correctly reading the sitaution and hence the amount of risk u don't consider as serious risk.
- the more speculative u r the more u hedge out-of-money. and more sure u r be at or in-the-money.
strike price points to be used for hedging should be such
that u strike a balance between
- the premium u pay (keep it minimum)
- the movement (delta) of option viz. a viz. movement in spot. otherwise hedge won't be effective.
- ur confidence in correctly reading the sitaution and hence the amount of risk u don't consider as serious risk.
- the more speculative u r the more u hedge out-of-money. and more sure u r be at or in-the-money.
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