The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets and hence they have been named derivatives.
One common application in the derivatives market, is to invest in index derivatives. Now, what does this mean? Index derivatives are financial instruments that derive their value from a market index. In India, this could mean the underlying asset is either based on the NSE NIFTY or the BSE SENSEX.
In this Menternship, you will be hedging the existing position of an investment portfolio, by incorporating a strategy of investing in index derivatives.
To begin with, you will analyse the provided portfolio to identify stocks with an unfavourable risk-reward ratio. Once done, you will then hedge the risk posed by these stocks by incorporating strategies, specifically focusing on index futures or index options, in this case.