How to Do Bank NIFTY Intraday Option Trading?

Bank NIFTY Intraday Option Trading is getting increasingly popular amongst intraday traders. Intraday traders are always looking for new opportunities in the market to trade in. Bank NIFTY index provides a unique set of conditions that are attractive to an intraday trader. This article will help you understand the factors associated with bank nifty intraday options trading and how it works.

Intraday Trading

Intraday trading is a popular form of trading that involves buying and selling shares on the same day and aiming to profit from the slightest price movements, upwards or downwards. Intraday traders use leverage, which allows them to invest more than their available capital and thus increase their chances of higher returns. It is also known as day trading due to the time horizon of the trade. It involves understanding charts and share price patterns and making educated speculations on future price movements.

Options Trading

Options trading is a form of derivative trading. Options are contracts that give a trader the right to buy or sell a stock on or before a specific date. As the name suggests, it is an option and not an obligation. It means that if an options trader does not want to exercise the right to buy or sell the stock, they have the option of not doing so.

Bank NIFTY

Bank NIFTY is an index that represents 12 bank stocks that are liquid and adequately capitalized. It provides investors and market intermediaries a benchmark that captures the capital market performance of the Indian banks. The index comprises 12 companies listed on NSE. The bank NIFTY index is almost a reflection of the health of the most prominent banks in India and helps to gauge the banking sector's performance.

What is NIFTY?

NIFTY is a popular term associated with the Indian stock market. NIFTY is an index of 50 different stocks spread across diverse sectors of the economy. It is an index introduced by the National Stock Exchange or NSE. The word “NIFTY” is derived from two words, National Stock Exchange and Fifty. The NIFTY index represents the most traded stocks on the exchange. NIFTY also acts as a benchmark to gauge the overall performance of the market. Thus, several stock baskets, mutual funds, and thematic investment options use NIFTY as a benchmark for their performance. The value of this index is calculated based on the weightage of each stock in this index. Each stock has a different weightage, and they comprise to provide a cumulative value for the index. The weightage is distributed based on the market cap of each stock.

NIFTY is not only an index but also available as a contract for derivative trading. Exchanges offer NIFTY future and options contracts whose actual value is derived from the underlying NIFTY index value- and traders can trade in these contracts.

How to Invest in Nifty?

Investing in Nifty simply means investing in the stocks that comprise the Nifty index. There are various ways an investor or trader can invest in Nifty.

  • Spot Trading/Delivery Trading – Spot trading is the simplest form of trading. Spot trading in Nifty means buying one or more stocks from the 50 Nifty stocks. You buy a stock at a certain price and sell it after the price has moved up to generate returns from the spot market. This is the same as buying any stock in the stock market. It is exactly what investors do.
  • Derivatives Trading – Derivatives trading is a form of trading where the value of the derivative is derived from an underlying asset. Thus, the name is derivative. In derivative trading, a trader speculates that a certain asset’s price may rise or fall depending on the market factors influencing its price. Thus, they buy a contract that allows them the right to buy or sell the asset at a future date at a previously agreed price. Exchanges also give you an option to trade on Nifty derivative contracts. It is further categorized into two parts.
    1. NIFTY Futures Trading – It is a form of derivative trading where a buyer and seller agree to buy or sell the contract on a previously agreed upon date and price. Here the buyer or the seller is compelled to exercise the contract at the end of the expiration date.
    2. NIFTY Options Trading – In a NIFTY options contract, buyers and sellers agree to purchase or sell the Nifty contract at an agreed price on a future date. Here, the option buyers are not compelled to exercise their right of buying and selling. If they do not want to exercise their right, they can choose not to.
  • Index Funds – Index funds are one form of mutual funds. It is a fund that invests across diverse sectors, making a balanced portfolio for you. Index funds actively invest in the Nifty index along with other indices in the market. Nifty is an overall market health indicator and thus it is getting increasingly popular among investors. Investors looking to capitalize on the growth potential of Nifty can choose to invest through index funds.

Trading in Bank nifty options Intraday

Intraday options trading involves opening a position and closing it by the end of the day. Intraday traders look for various attributes while selecting an index or stock for intraday trading. Two of the most important aspects they look for are trading volume and volatility. Thankfully, for intraday traders, bank nifty is rich with both these properties. Thus, giving good trading opportunity to intraday traders. Let us understand these factors to understand how this works.

Volume : Volume in simple terms is the number of times a stock has been traded in specified time duration. A higher volume means that there are a greater number of buy and sell orders, meaning a high liquidity. For an intraday trader, volume is a very important factor. This allows them to execute a buy or sell order at any moment. Volume data also indicates the popularity of the share or index in the market. Nifty stocks have high volume as they have established years of credibility with their performance and reputation. This is more of a reason why intraday traders trade on bank nifty intraday options trading.

Volatility : Volatility is nothing but the price fluctuations of a share. Traders do not want to trade on a stock that hardly moves throughout the day. Volatility gives them the desired fluctuations they are looking for. As the options market is volatile, and the price fluctuations are too frequent, intraday traders look at this as an opportunity. The price changes that happen in the options market are faster than the fluctuations happening in the spot market. This is how they use volatility to their advantage. Bank nifty is known for high volatility making it ideal for intraday option traders.

Bank nifty intraday options trading is one of the most traded financial instruments in the market. You can open a free Demat & Trading account with Bajaj Financial Securities Limited and trade in Bank nifty intraday at low brokerage rates. Visit link to open your account.

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