How to do Bank NIFTY Intraday Option Trading?


Before we look at how to do bank nifty intraday options trading, let us revise the basics once.

  1. Intraday trading: In Intraday trading, you buy and sell stocks within a day. Intraday trading involves the squaring off of all positions before the close of the market. Stocks are bought not as a form of investment, but as a mode of making profits by utilising the movement of the stock index. Although it is a bit risky, intraday trading is a quick way of making a profit from the stock market.
  2. Options: Options give you the right to buy or sell a share on or before a predetermined date. As a seller, it becomes your obligation to follow the terms of the transaction. The terms will be to either buy or sell, based on if the buyer decides to make use of their option before the date of expiry.
  3. Bank Nifty: Bank Nifty is a group that comprises a group of stocks from the banking area that is mostly liquid and largely capitalised. The selected stocks are then traded on the National Stock Exchange. The importance of Bank Nifty lies in the fact that it provides investors with a benchmark for the market performance of the Indian banking sector.

Trading nifty or stock options in intraday trading are possible. Most traders open a position at the beginning of a day, and close it near the end of the day. 

What is nifty?

A good understanding of how the stock market works is incomplete without knowing about NSE and BSE. These are the most essential pillars that support the Indian stock market and keep it functional.

BSE is the Bombay Stock Exchange and NSE is the National Stock Exchange. Each of these stock exchanges has introduced their own stock index. The stock index of BSE, which is the oldest stock exchange of our country, is Sensex. The major stock exchange that NSE introduced is called Nifty.

The term ‘Nifty’ is basically an amalgamation of two words – National and Fifty. Nifty is the list of 50 of the most highly traded stocks, as taken from all sectors. Nifty is the list of all the top stocks of NSE. So, if we say that Nifty is going up, it means that all the major stocks of NSE, irrespective of the sector they belong to, are going up. It is through BSE and NSE that most of the stock trading done in our country. So, that goes to show how important the Nifty is.

The Nifty list comprises 50 major companies that span 24 sectors. The performance of the best stocks from various sectors is taken into consideration while computing Nifty. Nifty is used as a benchmark by different mutual funds. How the mutual fund performs is mapped against how the Nifty performs.

The NSE also offers the choice to trade in futures and options which base Nifty as their underlying index. The calculation of Nifty is done using the method of market capitalization-weighted Index. Based on this formula, each company is assigned a weight based on its size. The bigger the size of the company, larger is its weightage.

How to do Bank NIFTY Intraday Option Trading?

How to invest in Nifty?

As we understand now, the Nifty is a benchmark of the Indian stock market index. Nifty comprises of around 50% of NSE’s complete trade stock. It is an indicator of the performance of NSE as a whole, and by extension, the Indian economy too. If Nifty is going upwards, it signifies that the whole market is moving upwards.

Investing in NSE is not the same as making an investment in Nifty. If you invest in the Nifty index, it gives you the opportunity to enjoy the growth and reap benefits from the entire bunch of 50 stocks. There are numerous ways in which you can invest in Nifty-

1. Spot Trading– You can buy the Nifty script, which is the most simple and straightforward way of investing in Nifty. This is the equivalent of buying the equity shares of various listed companies. Once you become an owner of the stock, you can reap the benefits from various price movements of the index, which result in capital gains.

2. Derivative Trading– Financial contracts that obtain their value from an asset that is underlying are called derivatives. These assets could be anything- indices, stocks, currencies or commodities. The parties involved agree on a future date to settle their contract. Profit is made by speculating on the value the underlying asset will attain in the future. To trade directly in the Nifty index two kinds of derivatives are available- futures and options.

  • Nifty Futures:In a future contract, the buyer and seller agree to buy or sell the nifty contract on a future date. During the period of the contract, you can sell it and make a profit if you see that the price has gone up. If the price goes down, you can wait it out till the date of settlement.
  • Nifty Options: In a contract of this type, the buyer and seller agree upon buying and selling the Nifty stock in the future, at a price they decide upon in the present. The buyer of this contract pays a sum as premium and obtains legal rights to buy or sell the Nifty share in the future. But, this is a right, and not a compulsion, so, the buyer can choose to not take action if the price is not favourable to him.

3. Index Funds– Index funds are a kind of mutual fund whose portfolio is designed to increase market exposure. This is done by creating a portfolio to match the parts of market index in such a fashion that it offers a wider exposure in the market. Such funds also invest in Nifty, amongst other indices.

The increase in popularity of the Nifty index in the last few years has attracted a variety of investors from retail, institutional and foreign areas. These investors invest in Nifty through index funds or directly. These factors make Nifty an attractive option if you are searching for a new avenue of investment.

Trading in stock options intraday

You can trade nifty or stock options on an intraday basis. In this, a trader is required to open a position at the beginning of the day and close it before the market day ends. The procedure you need to follow to carry out intraday trade is similar to the process for trading in options. You should watch out for the volume and fluctuations in the price of the stock.

  1. Trading volume – Volume basically denotes the total number of traders who are buying and selling the share over a given duration of time, generally a day. A high volume of the share means that it is more active. The data that denotes the volume of a specific share is easily available. It is displayed online on your trading screen. Almost all financial sites offer information regarding volume of shares. The stock you choose should have enough volume so that you have the freedom to sell it off with ease whenever you want.
  2. Price fluctuation – It is impractical to expect huge fluctuations in a share price during a day. But, there are stocks whose prices waver enough for you to make a profit if you invest in them. So, you should choose a share whose price fluctuates enough to enable you to make a profit within a day.

Trading in stock options on an intraday basis is what a majority of retail traders do. Options are volatile, so if you sense an opportunity to make an intraday trade, you should grab it. Short term traders depend on the price shifts in intraday shares and other technical charts to figure out the best moment to enter or exit a trade. Trading strategies are implemented on the basis of this analysis and they exploit the price fluctuations that are short term.

Strategies for intraday trading are used widely in the trade of options too. The prices of options do not change as rapidly as the prices of underlying stocks. So, what traders do is they keep an eye on intraday price fluctuations instead. This helps them figure out periods when the price of the option is not in sync with the price of the stock. This is when they make their move.