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How to do Nifty Intraday Option Trading?

  • Jan 4, 2024

Intraday trading focuses on making quick, strategic moves within a single trading day, capitalising on short-term market fluctuations.Intraday trading focuses on making quick, strategic moves within a single trading day, capitalising on short-term market fluctuations.Instead of investing directly in Nifty stocks, options trading allows you to play the market's ups and downs with less financial risk. In the section below, we'll explore how to do nifty intraday option trading.

So, let's get started.

An Overview of Nifty

The NIFTY 50, or CNX Nifty, is India's leading market index. It represents the weighted average market valuation of 50 well-established, blue-chip Indian companies trading on the National Stock Exchange (NSE). The Nifty plays a massive role in influencing overall investor sentiment towards Indian equities.

The index includes major sector representation like financial services, oil and gas, IT, automotive manufacturing, pharmaceuticals, FMCG, and infrastructure. The companies covered account for 13 sectors, constituting about 66% of the free float market capitalisation of the stocks listed on the NSE.

Due to its broad economic coverage and institutional investors' tracking, the Nifty 50 is considered India's premier stock market benchmark index for overall market movements. Regularly consulting the Nifty intraday chart to optimize your trading strategy can provide valuable insights into the index's current market trends and movements.

Different Ways to Trade Nifty

Investors have a few options to gain exposure to or trade on the Nifty index directly without purchasing underlying component stocks:

Nifty Index Futures - Nifty futures allow traders to speculate on price movements in the cash Nifty index. One lot of Nifty futures represents exposure to 50 units of the Nifty index.

Nifty Index Options- Bank Nifty options provide additional flexibility using call and put contracts to benefit from the upside or downside. One lot controls exposure to 75 units of the index.

Nifty ETFs - Exchange-traded funds tracking the Nifty provide mutual fund-like exposure to the index that trades intraday-like shares. Each unit reflects ownership of the portfolio, mimicking index performance. You can also check online the nifty option tips for more precise knowledge.

Nifty Mutual Funds - Nifty index mutual funds accumulate diversified portfolios mirroring the index's components and allocation. Investors purchase mutual fund units to gain broad exposure.

Of these avenues, Nifty options offer traders the most versatility to implement strategies across varied market outlooks with lower capital outlay than directly buying equivalent index units.

An Overview of Options Trading 

Options contracts give buyers the right, without the obligation, to buy or sell the underlying security at a fixed strike price by the expiration date in exchange for paying an upfront premium cost. This initial premium is non-refundable.

Two main types of options are calls and puts:

Call Options - Allow buying the underlying asset

Put Options - Allow selling the underlying asset

So, buyers of calls profit if the underlying price moves above the strike price enough to offset the original premium paid. Buyers of puts profit if the price moves below the strike price sufficiently to cover the premium. Unique advantages options offer include versatility, leverage, and defined risk parameters.

How to Trade Nifty Options Intraday

Intraday trading options on the Nifty 50 allows traders to benefit from short-term up or down price swings in the Indian market based on their particular view. Some strategies include: 

1.Buying a Call Option- If anticipating an intraday bounce up in the Nifty, traders target out-of-the-money call strikes. Profit potential if the Nifty rises enough above that strike price threshold to eclipse the call premium cost.

2.Selling a Call Option- If neutral to bearish in the short-term outlook for the session, traders can sell an out-of-the-money call strike to collect premium income from buyers. Generates profit as long as Nifty remains below the strike price at expiration without breaching.

3.Buying a Put Option- If expecting an intraday decline, traders buy an out-the-money put option to profit if the Nifty drops far enough below their chosen strike price to offset the put premium paid. Very similar payout to buying calls in a rising scenario.

4.Selling a Put Option- If positioned with a neutral to bullish bias short-term, traders sell Nifty puts at chosen out-of-money strikes to accumulate premium from put buyers. Profitable if the Nifty holds above your sold put's strike at expiration.

Conclusion 

Active traders utilize defined-risk Nifty index options to pursue profits from intraday up or down swings. Based on market outlook and risk-reward comfort, traders pick appropriately structured trades. Options offer accessibility for varied strategies with capped downsides.


Team Sharekhan
by Team Sharekhan

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