InvestorQ : If I am bearish but am expecting RBI to cut repo rates what should I do?
Nishant Chandani made post

If I am bearish but am expecting RBI to cut repo rates what should I do?

Answer
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Abhi Yadav answered.
2 years ago


When RBI cuts rates it is positive for banks and these banks have nearly 40% weightage in the overall index. Hence any rate cut would push the market and your put may end up being worthless. This is a slightly modified version of pure bearish scenario. You do expect the markets to go down and have therefore sold futures on the Nifty. But you are worried that if the RBI cuts rates in its monetary policy meet then the markets could shoot up and that will mean huge losses on your short Nifty futures position. You can create a protective call. If you have sold Nifty futures at Rs.9750, you can hedge your position by buying a Nifty call option of 9800 strike. Although this has a cost, you are protected in case the RBI decides to cut rates in its policy meet. Of course, your view on the market continues to be bearish and you are just trying to protect yourself in a worst case scenario.