Intraday Option Trading
The derivative market has become popular in recent years.
An option is a type of derivative contract between a buyer and a seller, or before the specified future date, at a price agreed today.
The option buyer is not obligated to buy or sell the shares, but if he is making any profit in the contract, only then he will complete the trade, but the seller of the option is always obligated to buy or sell the underlying asset, whether he is making profit or loss.
For example, I have 25 shares of bank nifty , the current price is 34900, and you have bought a call option of 25 shares from me at a specific price of 34900, but you are not obligated to purchase that shares.
If the price of shares rises above the current price of 34900, that means, for example, 35000, you have the right to receive the profit from me, that is 100 points per share.
The total amount of shares are 25, and the net profit is 100 points, so the total amount of profit is 25*100= 2500.
The price falls below 34900, which means 34800, at the loss of 100 points; in that case, you will not suffer from a loss of 2500.
And from my side as a seller, if the price rises to 35000, I will be obligated to give you 2500, but if the stock falls to 34800, you will not complete your trade, and I will receive the premium amount that you gave me at the time of execution of a transaction. Also, I am having my shares with me.
In this way, you can make big profits in options on buying a contract, and it doesn’t mean that we shouldn’t sell the option; option of sale is very beneficial if we sell them at right place and also there are different strategies, in which we 00make the combinations for option selling to make profits.
Take A Practical Example Of Intraday Option Trading
Currently, bank nifty is moving in an uptrend, and it’s trading at 34900; if you view is bullish for the stock, and you want to purchase 25 shares of bank nifty, that means the lot size of bank nifty is 25, as per new SEBI rules.
If you want to purchase one lot of bank nifty in the future, you want to pay the entire margin of bank nifty up to 1.25 lakhs (approx).
But if we see the option strike price of 35000 and 35100 calls option in bank nifty, it should be below 10 thousand.
In intraday options trading, why should we select the 35000 and 35100 strike prices?
If the current price of bank nifty is 34900, the nearest strike price is 35000 and 35100, and if your view is bullish, we will get the cost of the call option; if your picture is bearish, you will see the price of the put option.
If the bank nifty price rises to 35000, we will gain up to 2500 because the bank nifty is trading near the 35000 strike price.
In the case of futures, by investing 1.25 lakhs we will be able to get 2500 only, but in the options, by investing below 10 thousand, we will be able to get the same 2500, here the profits are the same, but the investment makes the difference in intraday option trading.
Suppose if bank nifty has fallen below 34900 that means up to 34800, and you will lose the money you have paid for the option premium.
If you bought the bank nifty in the future, if bank nifty has fallen up to 34800, your loss will be the same as profit.
Importance Of Moneyness In Intraday Option Trading ?
There are three main types of options used to describe the moneyness of the option contract
In the money option
At the money option
Out of the money option
There is always a gap between the strike price of the option and the spot price of the options.
Based on these gaps, we can understand the moneyness of the options.
Suppose the stock’s spot price is 1000, which means it is currently trading in the market at 1000 rupees.
If the options strike price equals the stock’s current price, it is At the money call option.
The option has two components, intrinsic value, and time value.
The intrinsic value for at-the-money options is zero.
At the money call options is the time value component.
If the option strike price is greater than the stock’s current price, it is out of the money call option.
They are the cheapest options to buy.
If the options strike price is less than the current stock price, it is the money call option.
They are the most expensive in premium.
The moneyness of the put options is opposite to the call options.
In a call option, if the option price is less than the spot price, it is In the money option.
But in-put options, that strike will be out of the money; it is the opposite.
Incall option, the strike price is out of the money; in the put options, that strike price is In the money.
There are some more types of moneyness,
Deep in the money
Deep out of the money
Near the money options.
The strikes that are near to the stock’s current price are near the money options.
The strikes that are very far from stocks’ current price are deep in the money and deep out of the money options.
For put options, these are quite the opposite.
Understanding the moneyness of the option is very important
If you don’t know money-ness, it’s all too easy to make mistakes in buying and selling opportunities.
For example, If bank nifty is trading at 34900 prices, you are willing to take the trade at options; what price will you select for intraday options trading?
I recommend taking a 35000 strike price because you are expecting the market to go bullish from today or tomorrow.
If the market has opened at 34900 and above, you will be in at the money price, and your premium will perform profitability.
Taking 35000 and 35100 strike price is entirely out of the money; at this time, if the bank is nifty performing on the bullish side, your premium may not perform much profitability due to time decay.
Taking 34700 and 34800 strike price is entirely in the money; at this time, if bank nifty is performing bullish side, you will be in losses.
Taking 35000 and 35100 strike price is entirely at the money; at this time, if bank nifty is performing bullish side, your premium will be in the range of In- the- money, and you may not be able to get many profits.
I prefer to take at the money, but not entirely out of the money.
Selection of the option strike price can apply to all stocks in Intraday Option Trading.
How To Book Profit In Intraday Option Trading ?
After entering the trade, you have to monitor the price action of the stock.
You have to set the target in the equity stock and stop-loss also in the equity.
After hitting the target in the equity, you have to close the position in options at the instant price.
After hitting the stop loss in the equity, you have to close the position in options at the instant price.
When taking the intraday options trading, you have to monitor the stock price action and watch and observe your option strike price.
What Are The Target And Stoploss In Intraday Option Trading ?
- Monthly and weekly support and resistance are the target and stop-loss.
- If you had entered call option trade, your target would be the next resistance.
- If you had entered put option trade, your target would be the next support.
- I will prefer nearly the next resistance and support, whether weekly or monthly.
- All these indicators, support, and resistance levels would be available under the platform Tradingview
- The trading view platform will make your work more efficient and accurate.
- If you follow the above rules strictly, intraday option trading trades are the most profitable and probable trades.
Remember, while trading in bank nifty options, the entry should be according to the futures; for the Intraday Option Trading strategies.
No patterns and designs will be available because intraday options trading is for the low investment people.
And to the people who trade with huge lots, options will depend on futures equity and index momentum.
Intraday options trading will also depend on data reading.
Option data reading courses and suggestions will be available on our private channels.
For the option traders, I recommend trading Intraday Option Trading on the data reading analysis.
All the above cases discussed are all probabilities; there are no sure shot points in the stock market.
I may confidently say that if you follow the above rules, you can get the most accurate trade-in Intraday Option Trading.
The trading view platform is the ocean of indicators and screeners also available in this platform.
Tools that can be helpful for trading are under one roof for Intraday Option Trading.
For more accurate and profitable information you can contact us.
We are not running an advisory company; we are just sharing our knowledge.
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