Do You Know How To Trade “BANK NIFTY Options”?

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What Is BANK NIFTY?

BankNifty (Nifty Bank) is an INDEX that includes Stocks from Banking Sector which has high volume and capital. BankNifty (Nifty Bank) is an INDEX that represents the percentage of overall performance by Stocks from the Banking Sector.

Which Stocks Are In BANK NIFTY?

At the time of writing this blog, below are some of the stocks that are currently listed under BankNifty (Nifty Bank) with their current total Market Capital in ₹ Crores.

These are some of the high volumes of Banking sector stocks on which the “BANK NIFTY” Index price gets fluctuated.

What Is a “BANK NIFTY OPTION”?

The Bank nifty option is also known as a Bank nifty Contract. Bank nifty options come with a defined strike price and specific end time. The specific end time for the option is every Thursday.

What is the Strike Price?

The strike price (Option) is an Index Price that mostly comes with a difference of 50 points and 100 points. The strike prices are available for all the upcoming prices and previous prices, like if BANK NIFTY is trading at 43000 then you may see available strike prices 43100, 43200 43300, and so on, similarly at the reverse side 42900, 42800, 42700, and so on. All the strike prices come with Call Options (CE) and Put Options (PE).

How are Call Options (CE) and Put Options (PE) Performed?

The strike price of Call Options (CE) increases when the Index price goes up. When a market is moving upside, traders can buy Call Options (CE) according to their trading strategies. However, if the Index price goes down, the price for CE Options will also go down.

PE goes up when the Index price goes down. When a market is moving downside, traders can buy PE Options according to their trading strategies. However, if the Index price goes up, the price for PE Options will go down.

All strike price options of Call Options (CE) and Put Options (PE) for the exciting week will get expired on the coming Thursday which is also known as the Weekly Expiry and the strike price options that get expired on the last Thursday of the month is known as the Monthly expiry.

Graphical User Interface

On your broker trading platform, the Weekly Expiry mostly looks labeled with the coming Thursday date along with the Index Name, Month, and Strike price with CE and PE. The Monthly expiry looks labeled with Index Name, Month, and Strike price with CE and PE, like below.

What Are The Categories Of BANK NIFTY Options Strike Prices?

The BANK NIFTY Options can be traded in Intraday and delivery (Cash and Carry / Holding till expiry day). However, not all broker trading platforms allow buying long-distance strike price options for delivery, Intraday is allowed.

BANK NIFTY Options Strike Prices are categorized into three parts that are In The Money, At The Money, and Out The Money.

What is In The Money Options Strike Price?

In The Money Option Strike Price means the price that comes before the current Index Price.

This means you are trading in a Strike Price that comes before the current Index Price, like consider if Bank Nifty Index is currently trading at 43000, then for the Buyers side (CE) the In The Money Option Strike Prices will be 42900, 42800, 42700. For the Sellers side (PE) the In The Money Option Strike Prices will be 43100, 43200,43300.

Based on your trading strategies it can be possible to achieve 100 to 200 points in a day when trading into the In The Money Option Strike Price, but there is a huge volume and fluctuation available in the In The Money Strike Prices Options.

In The Money Option can become At The Money or Out The Money if the Index price comes closer to the strike price or goes in its opposite direction.

What Is At the Money Options Strike Price?

At The Money Option Strike Price means the price that is the same as the current Index Price.

This means you are trading in a Strike Price that is currently the same as the current Index Price, like consider if Bank Nifty Index is currently trading at 43000, then for the Buyers side (CE) the At The Money Option Strike Prices will be 43000 CE. For the Sellers side (PE) the At The Money Option Strike Prices will be 43000 PE.

Based on your trading strategies it can be possible to achieve 50 to 100 points in a day when trading into the At The Money Option Strike Price, but there is a huge volume and fluctuation available in the In The Money Strike Prices Options.

At The Money Option can become In The Money Option if the Index price goes more in an expected direction or can become Out The Money if the Index price goes in the opposite direction.

What Is Out The Money Options Strike Price?

Out The Money Option Strike Price means the price that is on the long side than the current Index Price.

This means you are trading in a Strike Price that comes before the current Index Price, like consider if Bank Nifty Index is currently trading at 43000, then for the Buyers side (CE) the In The Money Option Strike Prices will be 42900, 42800, 42700. For the Sellers side (PE) the In The Money Option Strike Prices will be 43100, 43200,43300. There is a huge volume and fluctuation available in the In The Money Strike Prices Options.

Based on your trading strategies it can be possible to achieve 10 to 20 points in a day when trading into the Out The Money Option Strike Price. Normally there is not a huge volume or fluctuation available in the Out The Money Strike Prices Options all days, but if unexpected movement happened and Index reaches close to the Strike Price which was on the long side, then Out The Money Strike Prices Options can give you return 100X or even more.

Out The Money Option can become At the Money Option or In The Money option if the Index price goes more in an expected direction with a huge volume.

How Do You Trade “BANK NIFTY Options”?

The Strike Prices for all Options that are close to the current price of Bank Nifty can go down as per Expiry day come closer.

Let’s assume you are on Friday and the Bank Nifty is at 43000, you are assuming that the Bank Nifty may go 43500 till next Thursday, on Friday the Strike Price for Weekly Expiry option 43500 CE (Out The Money) may be somewhere around Rs 100. Now, even if the Bank Nifty touches 43500 at the end of Thursday, the Strike Price for Weekly Expiry option 43500 CE will end at Rs 0.05.

As per the all above details there are some points that need to be considered while trading in Bank Nifty Options, below are the same.

• While trading into the Bank Nifty options, you first have to be clear about your prediction based on your strategies. Always the best option to trade is select strike price In The Money or At the Money. At the start of a Week (after Thursday), you can look for At the Money strike price options to take a trade, and before the end of a week, you can look for In The Money strike price options. As per your assumption, you can go for CE or PE.
  
• While trading into the Bank Nifty options, you should have to follow strict STOP-LOSS. Even if there is a minor opposite movement in the Index price the option price goes down, also as mentioned above if the expiry day comes close and Index is not close to your expected strike price then the option may end with Rs 0.05, does not matter from where it came from. Hence to avoid unnecessary and huge losses, follow strict STOP-LOSS.
  
• Don’t go to buy huge quantities at the beginning level, the default 25 quantity is okay, and do not expect 200, or 300 points all day, You can set a 5-minute time frame and try to book short points, for In The Money with default 25 quantity try to book 60 to 80 points, for At The Money with default 25 quantity try to book 40 to 50 points, for Out The Money (Don’t go for very long side, 400 to 500 difference is okay) with default 25 quantity try to book 20 to 25 points. For heavy quantities, you can book points in short distances of 15 to 20.
  
• Do not hold more even if the target is achieved, based on your success rate of trading strategy you may get a chance to take a trade 2 to 3 times.
  
• Do not try to average if your position is minus, do not hold more if you brought at a high point, and set proper stop-loss to avoid further unnecessary and huge losses

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