Nifty future can be considered as long term investment by large group of nifty future trading community. Only thing to keep in mind is rollover to next month when current month contract expires. Now for those long term nifty future traders, when market turns volatile and starts correcting these traders needs to hedge their open position. At such time nifty options come handy to these traders. It becomes insurance for underlying contract, in this case nifty future.
Example of hedging Nifty:
Suppose you are long on nifty future, but markets have picked short term correction. So here trader can buy same quantity of nifty put options as he is holding nifty future, here all the losses caused by the down move i.e. mark to market losses will be covered by those nifty put option. This procedure is known as hedging the nifty future positions with the help of nifty options. With some stock brokers, hedging a position will lower your margin requirements. So you don’t block most of your margins on hedging and trade with the free margins.
Here the trick to keep the open positions hedged unless and until markets start to recover and in trader must select proper strike price depending on the days for F&O expiry. Point to remember is you are buying same nifty option quantities as you are holding nifty future.
About
But do Indian brokers/ Markets recognise that an Nifty Futurs position is Hedged by using NIFTY Options ( I am assuming these Options are on NIFTY Futures not NIFTY SPOT)
ANd in turn give margin advantage? Just the way other markets in the world do
For example
LONG NIFTY FU
LONG NIFTY PUT Option
NO margin call on Futures position until PUT Option expiary