Beginners looking to start options trading often struggle to decide between Nifty vs Bank Nifty Options Trading. After exploring various Youtube channels dedicated to trading, one will see many top traders trading Bank Nifty while Nifty Index trading tends to receive greater coverage by news channels and market experts.
As it can be challenging for beginners to determine and select an investment vehicle that’s the most advantageous, in this article we’ll compare and contrast Nifty Options Trading to Bank Nifty Options Trading to determine which option trading platform would provide optimal trading conditions – keep reading to discover this secret truth.
Nifty Options Trading
Nifty is India’s most-famed index and widely recognized across both novice traders and experts alike. From beginners to veteran market professionals alike, all are familiar with NSE’s benchmark index as it serves as an economic barometer encompassing 50 companies listed on National Stock Exchange with free-float market caps listed therein.
Option traders considering trading Nifty should closely scrutinise its top constituents to understand which stocks are driving its movement. A stock with consistently higher weighting could push up its index value; similarly, any decrease may bring it lower and vice-versa.
As of 30 September 2022, the top constituents of the Nifty Index by their weightage in the Index are as follows.
Reliance Industries, HDFC Bank, ICICI Bank, Infosys & HDFC account for 44.85% of Nifty Index. Any move by these constituent stocks could significantly move it and could also influence it positively or negatively, though big movements in other constituent stocks might cause similar movements as well..
Nifty’s composition as an index comprises multiple stocks from across different sectors with diverse weightage; thus it does not experience high volatility unless there is major economic news to consider.
Options Trading in Nifty requires traders to purchase at least one lot of 50 quantities as Options Buyer. For instance, when trading Nifty 17800 PE options at month end expiry the minimum margin requirement will be Rs 4,195.
Bank Nifty Options Trading
Bank Nifty has long been considered an attractive opportunity for options traders, offering the potential of yielding large gains at relatively little risk. But its profitability must always be carefully balanced against this increased level of risk.
One key reason traders rely on the Bank Nifty index is because its main constituents include only five banks – HDFC Bank, ICICI Bank, Kotak Mahindra Bank Axis Bank and State Bank of India (SBI) making up around 84% of this index’s composition.
As of 30 September 2022, these were the top constituents of the Bank Nifty Index by weightage within it:
Tracking the top five constituents of the Bank Nifty Index is crucial in keeping an eye on major movements within it.
Bank Nifty has an extreme level of volatility with a standard deviation of 1.55. Any news concerning banking sector firms or major market benchmark index movements could make Bank Nifty fluctuate substantially, as can news in other sectors or major movements involving them.
Let’s use Bank Nifty as an example: when trading the options market of Bank Nifty, traders need to purchase at least one lot of 25 quantities as Buyer. So for example if you wish to acquire 41200 CE Call options with month end expiry for 1 lot of 25 quantities; your margin requirement would be Rs 4,296.
Nifty vs Bank Nifty Options Trading
Here are the key differences between Nifty vs Bank Nifty Options Trading according to different considerations:
- Lot Size: For Options Trading in Nifty, 1 lot=50 Quantities. For Bank Nifty, 1 lot=25 Quantities
- Constituents: When trading Nifty Index, traders need to closely follow its constituents and the overall market. Conversely, Bank Nifty can make trading easier as traders only need to focus on banking industry leaders and top constituents when following its movements. Overall it makes its movements simpler to track.
- Volatility: Bank Nifty tends to be more volatile compared with Nifty; for every move of one percent in either direction by Nifty, Bank Nifty can go 1.5% further up; thus creating more opportunities but with higher risks as well.
Overall, for beginners it would be advantageous to begin their options trading journey by trading Nifty Index, as its volatility is relatively lower and most traders already understand this index.
With experience comes greater rewards when trading Bank Nifty options; as intermediate to advanced traders they can capitalise on volatility to reap higher gains from Bank Nifty trading.
Let figure out with calls and puts:
NSE Option Chain
NSE Stock Options Chain provides an exhaustive listing of call and put options strike prices with their premiums for any given expiry. It serves as one of the key leading indicators, dependent upon various variables including Open Interest (OI), Change in OI, Implied Volatility (IV), Premium Decay for every strike price that comes closer to matching current price of the underlying.
At nifty trader option chain analysis for traders by making it straightforward to interpret. Our option chain displays both writer positions and buyer positions within an option chain – providing insight into points of strength or weakness within a market environment and showing which option writers hold what positions.
1) OI increasing & Option Price Increasing –> Call Buying (Bullish)
2) OI increasing & Option Price Decreasing –> Call Writing (Bearish)
3) OI Decreasing & Option Price Increasing –> Call Short Covering (Bullish)
4) OI Decreasing & Option Price Decreasing –> Call Long Covering (Bearish)
1) OI increasing & Option Price Increasing –> Put Buying (Bearish)
2) OI increasing & Option Price Decreasing –> Put Writing (Bullish)
3) OI Decreasing & Option Price Increasing –> Put Short Covering (Bearish)
4) OI Decreasing & Option Price Decreasing –> Put Long Covering (Bullish)
In this article, we compared Nifty Options Trading with Bank Nifty Options Trading to help determine which is better. Basically, trading these indexes differ based on lot size, volatility and constituents.
1 lot in Nifty trading equals 50 quantities; for Bank Nifty it represents 25 units. Comparatively speaking, Nifty tracks overall market movement while Bank Nifty only considers banking sector events.
Bank nifty trading can offer larger profits for those seeking greater returns as it’s highly volatile, potentially yielding larger rewards (but also risks). To minimise losses while maximising profit potential, traders are advised to implement stop loss/hedging strategies so as to limit risks while maximising returns.
At this stage, this article on Nifty vs Bank Nifty Options Trading should have cleared up any confusions you might be facing. As always, feel free to reach out with any concerns, have an awesome day and successful trading!