Monday, December 15, 2008

Booking Profits

In the last 5 days the Indian markets have gone up by 5-6%; all those who entered at sub 2700 levels would be better off (IMHO) booking their profits now. If you are a small retail investor with exposure to multiple stocks, booking profits would incur substantial transaction costs; to avoid the same, the best way out is to enter into suitable number of long put option contracts. The only risk is that the number of option contracts may not exactly match the underlying stock holding. But this strategy will help at least to book profits for major portion of your holdings. I prefer long put than shorting the futures as the downside risk (in case the markets go up from current levels) of long put is limited to the premium paid, while the downside risk of futures is unlimited.

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