Rohit asked:
I have a doubt regarding profitability of derivative market. Is Nifty Futures trading or Nifty Options trading more profitable? What are the advantages and disadvantages of both the segment?
I know many intraday traders sticking to options and position traders trading futures. Are position traders avoiding options because of the time decay factor in options?
Suppose If we capture a 50 points up move in Nifty in a day, trading futures or options will give us more profit? Also, if we have to hold our position for 2 weeks to get this 50 points up move in Nifty, will futures or options gives us more profit?
In case of down market, is shorting in futures require more margin money and expensive when compared to buying Put options?
I have a trading capital of 2 lakhs rupees, would you suggest me to trade options or futures? If I have a strategy to swing trade in Nifty(1 to 5 days), does trading in futures or options is better? I have trading account with zerodha.
I know you are a busy person. Kindly find time to clear my doubts. You may find these doubts silly. But I am new to derivative market. Expecting your reply.
Thanks and Regards,
Rohit
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My Reply in the sequence of the questions:
1) There is nothing like which one is more profitable, Options are more volatile because % change is big.
Options tend to be more volatile near expiry. At the beginning of the series , 20 points of nifty movement may give move of 4 point of premium in next out of the money option, but as the expiry comes near 20 points of nifty movement can lead to same amount of movement in same option value. So If you are able to time options well, then % wise it can give 200 to 500 % returns also in a same day. But at the same time its very easy to see the premium going down by 60-80% in a same day. So everything comes with a cost. You just can not get more profitability without increasing the risk.
2) You only answered to your second question. Yes, I also avoid options in positional trading.
3)Capturing 50 points of move in a day, option can give you more money in % terms. And it also depends how far are we from expiry.
4) Future is always expansive to trade because it needs more margin, while buying options is always tempting and cheap as it needs no margin. All you have to pay is the premium. In 2 lakh you can buy 80 lots of options with premium of 50 rs. But you can not buy or sell more than 8 lots of futures with 2 Lakh as we need approximately 25K per lot as margin requirement.
5) I will strongly recommend you to trade only futures and do not try options. Because Greed and Fear is very difficult to handle in options. And secondly Time factor is always against option buyers, So do not try options at your early stage of trading.
Happy Trading
Pawan
I have a doubt regarding profitability of derivative market. Is Nifty Futures trading or Nifty Options trading more profitable? What are the advantages and disadvantages of both the segment?
I know many intraday traders sticking to options and position traders trading futures. Are position traders avoiding options because of the time decay factor in options?
Suppose If we capture a 50 points up move in Nifty in a day, trading futures or options will give us more profit? Also, if we have to hold our position for 2 weeks to get this 50 points up move in Nifty, will futures or options gives us more profit?
In case of down market, is shorting in futures require more margin money and expensive when compared to buying Put options?
I have a trading capital of 2 lakhs rupees, would you suggest me to trade options or futures? If I have a strategy to swing trade in Nifty(1 to 5 days), does trading in futures or options is better? I have trading account with zerodha.
I know you are a busy person. Kindly find time to clear my doubts. You may find these doubts silly. But I am new to derivative market. Expecting your reply.
Thanks and Regards,
Rohit
---------------------------------------------------
My Reply in the sequence of the questions:
1) There is nothing like which one is more profitable, Options are more volatile because % change is big.
Options tend to be more volatile near expiry. At the beginning of the series , 20 points of nifty movement may give move of 4 point of premium in next out of the money option, but as the expiry comes near 20 points of nifty movement can lead to same amount of movement in same option value. So If you are able to time options well, then % wise it can give 200 to 500 % returns also in a same day. But at the same time its very easy to see the premium going down by 60-80% in a same day. So everything comes with a cost. You just can not get more profitability without increasing the risk.
2) You only answered to your second question. Yes, I also avoid options in positional trading.
3)Capturing 50 points of move in a day, option can give you more money in % terms. And it also depends how far are we from expiry.
4) Future is always expansive to trade because it needs more margin, while buying options is always tempting and cheap as it needs no margin. All you have to pay is the premium. In 2 lakh you can buy 80 lots of options with premium of 50 rs. But you can not buy or sell more than 8 lots of futures with 2 Lakh as we need approximately 25K per lot as margin requirement.
5) I will strongly recommend you to trade only futures and do not try options. Because Greed and Fear is very difficult to handle in options. And secondly Time factor is always against option buyers, So do not try options at your early stage of trading.
Happy Trading
Pawan
Thank You for the reply Pawan.
ReplyDeletePawan, As you have mentioned, there is a chance of earning big money (in terms of percentage returns) in options. And the risk is what we have paid (money used to buy options contract). Suppose if we bought an option contract with Rs: 50,000, there is a chance of winning big and losing a maximum of Rs: 50,000.
ReplyDeleteBut in case of Futures, since the volatility is moderate, the gain % can also be moderate and our risk is more than what we have invested. That is, in case of futures, we can lose more than Rs: 50,000 since there is margin adjustment done by brokers on a day-to-day basis. So can I conclude like this:
Options: Unlimited Returns, Limited Risk.
Futures: Moderate Returns, Unlimited Risk
So, Is options better than Futures?
Pawan, Correct me if my understanding is wrong