In Highly Volatile Stock Markets- Hedge Your Losses With Put Option

Though future and options as a sole are risky, but investors during the current correction phase with huge volatility in the stock market can protect their portfolio by hedging with a put option in the stock. The put option gives the buyer of the put to exercise the option at the decided price or strike price i.e. sell the security at an agreed price in the put contract at a future time. So, in a case when the stock market makes direction against your stand, you can exercise the put option to mimimise your losses.

Options contracts are not available for free and you need to pay a premium price for it as also brokerage plus there are tax implications.

For the hedging advantage that you are provided with the put option you need to pay in the price. It is suggested that in highly volatile times you opt for a long term put option instead of the regular monthly options as they are expensive.

Taxation on Option contracts

For investors who take the options and futures route on an occasional basis, the income from such hedging is to be treated as capital gains income. While for other regular traders in F&O segment, the income is to be provided under the head business income.

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