If you want clarity on how to do Nifty Options trading, this article will provide you with essential guidance. In this article, I will walk you through the important Nifty Options trading terminology, lot size, expiry, brokerage charges, trading types, technical analysis, and money management.
How to Do Nifty Options Trading: The Short Answer
You will need an online trading platform like Zerodha or Upstox to do Nifty Options Trading. Next, you can decide whether to be an Options buyer or seller. You can buy or sell Call (CE) or Put (PE). After that, you must work on your Money Management plan for your trading type and pay close attention to technical analysis. When you enter a position, always choose an ATM contract and never trade without placing a Stop Loss.
What is Nifty Options Trading?
Nifty or Nifty50 is the index of the top 50 equity stocks in India, and Nifty Options trading involves buying and selling contacts of the Nifty50 as the underlying asset. Contracts are available as Call(CE) or Put(PE), which you can sell or buy.
While selling a CE or PE requires comparatively big capital, you can start Nifty Options Trading for as low as ₹10,000. Many experts recommend Nifty Options trading over Bank Nifty Options trading since Nifty Options trading is comparatively less volatile than Bank Nifty Options trading.
How to Do Nifty Options Trading: Terminology
Here are some important terminology that you should know before you start Nifty Options trading:
Spot chart: Spot chart is the chart of the underlying asset, which is the Nifty50 chart in the case of Nifty Options Trading.
Strike price: Strike prices are nothing but price levels. In Options trading, CE and PE contracts are available at different price levels. Contracts at the spot price or current market price of the underlying value are called “At the Money” contracts, while ones at strike prices away from the current market price of the underlying value are called “Out of the Money” Contracts.
Premium: The price of a CE or a PE contract is called the Premium. Contracts at different strike prices are available at different Premiums. “In the Money” and “At the Money” contracts have high Premiums, while “Out of the Money” contracts will have low Premiums.
Lot: A lot in Nifty50 Options trading means a group of 50 shares. Two lots of Nifty50 will have 50 x 20 = 100 shares. The maximum lots of Nifty you can buy in a day is 36. You can capitalize on Zerodha's Iceberg order feature to buy more than the limit.
Expiry: Nifty50 contracts are available on week expiry and monthly expiry. The weekly contracts expire every Thursday, while the monthly contracts expire on the last Thursday of every month.
How to Do Nifty Options Trading: Brokerage Charges
It's important to understand that your broker charges a brokerage fee for every buy and sell order. Every trade is made of a buy-and-sell order. Hence, your broker usually charges a brokerage fee for both executed orders.
For example, Zerodha charges a brokerage fee of ₹20 flat on executed orders, and that way, for every trade, it will charge you ₹20 for Buy and another ₹20 for Sell. Besides, there are other charges like STT; together, charges per trade go upto ₹50.
You will be charged this amount per trade whether you win or lose. However, brokerage charges vary from platform to platform, which is crucial when choosing a trading platform.
How to Do Nifty Options Trading: Choosing the Right Strike Price
Options trading is based on Options Greeks: Delta, Gamma, Theta, and Vega. You can always study Options Greeks for more advantages, but you don't need the Options Greeks for starting Options trading. Moving forward with choosing the right strike price in Nifty Options, most experts suggest choosing an ATM contract.
An ATM contract has a delta value of 0.5, which means if the price moves 100 points on the spot chart, it will make 50 points movement in your ATM contract chart, while you will earn less with OTM contracts. Hence, choosing an ATM contract is always wise.
How to Do Nifty Options Trading: Trading Types & Technical Analysis
Options Trading offers excellent flexibility, and you can trade Options in various ways. Three popular forms of trading Options in India are Scalping, Intraday trading, BTST, and Swing trading. Scalping is a trading position that lasts from 1m to 5m. Intraday trading can be from more than 5m to hours. BTST stands for Buy Today and Sell Tomorrow, while Swing trading may last more than two days but must end before expiry.
While one-legged directional strategies require low capital, two-legged strategies like Straddle and Strangle are popular in Options trading, which may require more money. While two-legged strategies can secure your position to a large extent, they can get you comparatively more losses if the market remains sideways.
Irrespective of your trading style, you must have a good idea of the current trend before entering a position in Options trading. As most experts suggest, you must trade in the direction of the trend. A trend can be an uptrend, a downtrend, or a sideways trend. Technical analysis involves various price-action elements like demand and supply zones, trendlines, and overbought and oversold levels. Besides, you can look for multiple candlestick patterns like Pin bar and Bullish Engulfing. Many traders use technical indicators like EMA and RSI for their technical analysis.
How to Do Nifty Options Trading: Money Management
Options Trading is highly risky and can even wipe off your entire capital in one day if not dealt with carefully. There needs to be more than a good technical trading setup; this is where money management comes into play.
Money management involves determining the maximum number of daily trades, your daily profit and loss, and your Stop Loss and Target per trade. Once you have a good money management plan, it should prevent you from overtrading, and you are good to go with your trading journey.
How to Do Nifty Options Trading: How to Start
You must be intrigued to know you can start your Nifty Options Trading. To start Options Trading, you need to choose a reliable trading platform. When it comes to online trading platforms in India, there are just so many of them around. However, some trusted names are Zerodha, Upstox, Angel One, Fyers, Dhan, and mStock. Once you open an account with any of these brokers, you will need to fund your account, and you should be good to start with Nifty Options Trading.
I have walked you through the various crucial aspects of Nifty Options trading to explain how to do Nifty Options trading. I have explained the important terminology, trading types, technical analysis, money management, and trading platforms. You should now have good clarity to start trading Nifty Options.
How to Do Nifty Options Trading: FAQs
What are Nifty options?
Nifty options are financial derivatives that give traders the right, but not the obligation, to buy or sell the Nifty index at a predetermined price within a specific time frame.
How do I get started with Nifty options trading?
To get started with Nifty options trading, you must open a trading account with a registered brokerage, complete the necessary paperwork, and fund your trading account. Once your account is set up, you can start placing Nifty options trades.
What are the key components to consider before trading Nifty options?
Before trading Nifty options, it's important to understand the underlying Nifty index, the expiration dates of options contracts, the strike prices, and the implied volatility of the market. Additionally, having a solid trading strategy and risk management plan is crucial.
What is a call option in Nifty trading?
A call option in Nifty trading gives the holder the right to buy the Nifty index at a specific price, known as the strike price. Traders buy call options if they anticipate that the Nifty index's value will rise.
What is a put option in Nifty trading?
A put option in Nifty trading gives the holder the right to sell the Nifty index at a specific price, the strike price. Traders buy put options if they believe that the Nifty index's value will fall.
How can I analyze Nifty options before placing a trade?
You can analyze Nifty options using technical and fundamental analysis. Technical analysis involves studying price charts and patterns, while fundamental analysis considers factors such as economic indicators and market news that could impact the Nifty index.
How important is risk management in Nifty options trading?
Risk management is crucial in Nifty options trading to protect your capital from significant losses. Setting stop-loss orders, diversifying your trades, and not investing more than you can afford to lose are key aspects of effective risk management.