If you are planning to start Options Trading with 1000 rupees, you may not be able to trade on all trading days since you can only afford to get far OTM contracts with capital as low as ₹1000. However, you can still try your luck on Options' expiry days. In this post, I will explain everything you need to know about Options Trading and how to do options trading with 1000 rupees.
What is Options Trading?
Options Trading is also known as derivative Trading since it involves buying and selling contracts of an underlying asset, which can be an Index or an Equity. Options contracts are available for a Premium or a price much lower than the underlying asset. You can buy more lots as long your capital permits. However, practicing with one lot for at least one year is recommended. You can buy or sell an Options contract. However, with capital as low as ₹1000, you can only afford to buy and not sell Options contracts since selling will require a much higher capital.
|Size of 1 Lot
You Can Only Trade on the Weekly Expiry Day with ₹1000
It's time to face the truth, and you can't really trade Options on all days with just ₹1000. The problem is you can only buy Far OTM contracts with capital as low as ₹1000, which means even if the underlying asset makes a big move, you will still not make good profits. To make profits in Options Trading, you need to buy an ATM, or at least close ATM contracts. However, on an weekly expiry day, which is on every Wednesday, things are different, and you can trade Options even with ₹1000.
How to Trade Options On the Weekly Expiry Day
Now that you are convinced that you can't trade on all days with just ₹1000, it's time to explain how you can trade Options on the Weekly Expiry day. On the Weekly Expiry day, the contracts' premium starts declining drastically due to time decay. Going by the same logic, many people prefer buying Far OTM contacts with a directional perspective. Interestingly, you can get a Far OTM contract for as low as ₹5. When the price makes a big one-sided movement after 1:30 pm and if it happens to be in the expected direction, your OTM contract will turn into an ATM contract. It means the contract’s price will make a leap from ₹5 to ₹30 or ₹40 as the price makes a one-sided movement.
However, it’s extremely important to do a good technical analysis to be right with your direction. Besides, you can refer to the PCR value to determine the direction of the market. Experts believe that if the PCR is above 1.1, the market is bullish and you can buy on dips, On the contrary, if the PCR is below 0.95, you must avoid buying and consider selling at dips. If the PCR is 1, it means the market is sideways. Further, it’s always advisable to place a Stop Loss, and lock your profit by trailing your Stop Loss.
Keep your Capital Intact with a Proper Money Management
The Market can wipe off your entire capital in just one day if you trade without proper Money Management. Money Management offers excellent clarity for managing your trades. When you are just getting started with Money Management, the first thing to do is determine Day's Profit and Loss ratio, which means what is the maximum profit you want to make in a day and what is the maximum loss you are okay to make every day.
Next, you need to determine the maximum number of trades per day. 2 to 3 trades per day is considered wise. After that, you must determine the Stop Loss and Target points for every trade. It is also called risk: reward. In Options Trading, anything below 1:2 is considered a bad risk: reward. If you are trading only on expiry days, you can keep your risk: reward from 1:3 to 1:5. Once you determine your risk: reward, you must religiously follow it. There will be winning days as well as losing days. However, your Money Management will help you in avoiding big losses. Besides, it will also help you make good profits.
Never trade without a Stop Loss
Stop loss is a must for Trading, and it also holds true for Options trading. As I pointed out in the beginning, Options are highly volatile, and if you don't place a Stop Loss for your position, it can wipe away your entire money invested. In the beginning, your Stop Loss may get hit fast, but as you practice harder, things will certainly improve. You will learn where to take a position with a small Stop Loss. Besides, it will also help you with your money management.
Learn to place Stop Loss before you place your buy orders
If we consider how things used to be in the 90s, there were hardly any resources for investors and traders to refer to and learn from other than news. On the contrary, you can learn anything and everything really fast these days with platforms like YouTube. After you choose a trading platform for Options trading, the next best thing to do is find out how to place a Stop Loss order on that platform for a position you take. For that, you can look for a good video tutorial on how to place a Stop Loss order for your preferred broker.
Technically, you must place a Stop Loss order after entering a position. Usually, to place a Stop Loss, you have to get to the position tab, click on Exit, select SL, and enter your SL price and trigger price. Besides, platforms like Zerodha and Upstox come with GTT order type, allowing you to put SL and Target while placing your Buy order simultaneously.
Learn Technical Analysis
If you want to trade Options, you must learn to read technical charts, and every decision you make should be based on what you see on the technical chart. Reading technical charts will need you to learn Price Action analysis, Confirmations, and Options Chart Analysis. Besides, you may like to learn some useful indicators as well. Some of the most popular indicators are RSI, EMA, MACD, Supertrend, and Pivot Points. You can start your technical analysis journey anytime by opening a free Tradingview account. Besides, all online brokers these days come with technical charting tools.
Choose a Reliable Trading Platform
Zerodha is India's most reliable trading platform and is highly recommended for beginners since the trading platform comes with a clean and easy-to-use interface.
It's always a good idea to start with a low capital since it offers much room for learning without losing big money. I have explained how you can trade Options with capital as low as ₹1000. Expiry day trading is pretty popular in India. As you have read in the post, you can only trade Options on Expiry Days with capital as low as ₹1000. However, if you want to trade Options on all trading days, you must have a capital of at least ₹5000 to ₹6,000. To start Trading, you need to first work on your Money Management and technical analysis. Further, you must select a reliable trading platform, and one big name in this regard is Zerodha.