How to do Nifty Intraday Options Trading?

As one of India’s most reliable stock indices, Nifty 50 represents the largest and most reputable companies in the country. As of September 30, 2024, this index represents 54% of the total free-float market capitalisation of the NSE (National Stock Exchange). Traders can benefit from the daily price movements of any Nifty index by buying and selling Nifty intraday options.

These options are among the most traded instruments in the Indian stock market. Traders prefer Nifty intraday options for transparency, leverage and lower minimum capital requirements. Learn everything about how to trade in Nifty intraday through options trading in our detailed blog.

Understanding Nifty Options Trading

Nifty options trading involves buying and selling options whose underlying asset is one of Nifty’s indices, such as the Nifty 50, Nifty Bank, etc. Traders can buy or sell call and put options to benefit from the upsides or downsides of a Nifty index. A single lot provides exposure to 75 units of the underlying index. 

In Nifty index options trading, traders hedge their portfolios against losses or speculate on future price movements. Nifty options are contracts where a buyer and a seller agree to buy or sell the index on a date and price selected in the present. Both parties do not have any compulsion to execute trades. 

How Does Nifty Options Trading Work?

Before we explain how to do intraday trading in Nifty 50, let us go through a few key concepts:

• Intraday Trading: Also called day trading, this form of trading involves buying and selling securities within the same day to take advantage of short-term price fluctuations. 
• Options Trading: An option is a type of financial instrument that gives the holder the right but not the obligation to buy or sell the underlying asset at a predetermined price on or before a predetermined date. Options writers receive an amount called a premium to sell each contract. 
• Nifty Options Trading: Nifty 50 is NSE's flagship index and comprises the stocks of the top 50 companies on the index based on their market capitalisation and weightage. Besides Nifty 50, you can trade options like Nifty Next 50, Bank Nifty, Nifty Financial Services, etc.

Here is an example of how to trade in Bank Nifty intraday. 

Say that Bank Nifty is trading at 49,000, and you expect it to reach 50,000 by the end of the day. To benefit from the upside, you can buy call options with a strike price of 49,200. When the price rises, you can profit by buying the index at the strike price and selling it off at the prevailing price. 

Different Ways to Trade with Nifty Options 

Before learning how to trade in Nifty intraday, we need to learn about different options. There are mainly two types of options: put and call. Put options let you sell the underlying asset, while call options let you buy the index at a fixed price. Here are the different ways to use Nifty options:

1. Buying a Put Option: Buyers of put options profit if the price of the underlying Nifty index moves below the strike price by an amount sufficient to offset the premium amount paid. 
2. Selling a Put Option: Sellers of put options profit if the chosen Nifty index stays above the strike price at expiration. Sellers profit from the premium amount paid when the buyer chooses to let the option expire worthless. 
3. Buying a Call Option: A call option buyer makes a profit if the underlying Nifty index rises above the strike price at or before expiration. The profit amount depends on the difference between the index price and the options strike price minus the premium amount. 
4. Selling a Call Option: The seller or writer makes profits when the Nifty index stays below the strike price. The profit is limited to the premium amount as the buyer will let the option expire if it doesn’t give him profits.

Intraday Trading Strategies for Nifty Options 

Here are the most effective intraday trading strategies for Nifty options:

• Naked Calls or Puts: This is the simplest strategy on how to do intraday trading in Nifty options. It involves buying or selling puts or calls without any protective offsetting positions. Options sellers can be exposed to unlimited risks. 
• Bull Call Spread: This strategy involves purchasing one call option at a lower strike price and selling another call at a higher price but with the same expiry date. This limits the risk and profit potential but gives a fixed premium.
• Bear Call Spread: This strategy involves purchasing a call option at a higher strike price and selling a call option simultaneously. You make profits of up to the premium amount if the Nifty price falls or incur losses up to a defined amount if the index rises. 
• Long Straddle: This strategy involves simultaneously buying a call and a put option at the same price and expiry date. Your risk is limited to the premium paid for both options, while the profit potential is unlimited. 

The Bottomline 

Traders knowing how to trade in Nifty intraday with options can make significant profits from movements in the price of the respective index – Nifty 50, Bank Nifty, etc. Those with a good understanding of the market dynamics, technical tools and a disciplined strategy will find Nifty options to be ideal for trading.

Disclaimer: This content is solely for educational purposes. The securities/investments quoted here are not recommendatory.