Intraday Options Trading in India – Everything You Need To Know
By now, you’re sure to have listened to many success stories about traders from stock exchanges. Be it on YouTube videos, friends, neighbours, or even intrusive advertisements from financial brokers in the country. The fact is, one of the most commonly utilized methods for generating wealth through the stock market is intraday options trading in India.
As the name suggests, you will be entering and exiting a position within the same day. This is one of the commonly used tools for speculators and traders to enter the position on the same day, without having to take delivery of the underlying asset.
You may have also heard about the risks involved in intraday trading.
Yes – intraday trading is highly risky. Yes, the returns are mind-blowing. But if you don’t create a proper intraday trading strategy, and stick to it, it is extremely easy to lose all the money you’ve earned.
Before we go into detail on what’s necessary to create the best intraday trading strategy online, Here are some of the basics that you need to know.
Intraday Options Trading In India – The Basics
What are Options?
Options are a type of derivatives contract that gives the holder the right (not the obligation) to purchase/sell the underlying asset at a specified price, after a specific time.
For instance, say you purchase a put options contract for a specific equity stock. When the duration of the options is over, you will have the option/choice to sell that equity stock at the pre-agreed upon price.
Types of Options Contracts
There are two major types of Options Contracts.
Put Options – Gives the holder the right to sell the underlying shares at an agreed upon price, at the agreed upon time.
Call Options – Gives the holder the right to buy the underlying shares at an agreed upon price, at the agreed upon price
Options Trading – Some Common Terminologies
Expiration date – The date after which the contract expires. In American options (rare in the Indian markets), the options contract can expire anytime before the expiry date. In European Options (the most common type), the options contract has to be exercised on the expiration date.
Strike Price – The price at which the holder has the right to purchase/sell the stock.
Premium – The price per share that you pay to purchase the option contracts. Usually consists of two parts
Intrinsic Value: The value of the options contract derived based on the difference between the current market valuation of the stock, and the strike price.
Time value: The value of an options contract derived based on the duration left before the expiry of the options contract. Typically, the larger the duration left before expiry, the higher the value of the options contact would be (as the possibility that the options contract’s intrinsic value would increase in the meantime). This “decay” in value is called “theta”.
Last: The price that was paid to purchase/received to sell the option the last time it was traded.
Bid: The price a buyer is willing to pay for the option. If you’re the seller, you may either choose to sell the options at this price, or wait for a better price.
Ask: The price at which the seller is willing to accept the option.
Change: The change in price since the close of the previous trading day, usually expressed in percentage
Open Interest: The quantity of options contract that are currently traded in the market.
Volatility: A measurement of how much the price of the underlying asset can swing in a day.
Benefits of Intraday Options Trading
High Upside Potential, Limited Downside Potential – Options contracts allow you to cash in on all the positive price movements, while the negatives are limited only to the amount of premium paid to purchase the options contract. In other words, the sky is the limit when it comes to profit, but you don’t stand to lose a single penny more than the amount you used to purchase the options contract.
Low Cost of Entry – Day trading in options allows you to enter and exit positions much quicker, and with much less capital than with other types of securities. These options contracts are cheaper than the underlying asset, enabling you to control the same number of shares with much less capital.
Improved Opportunities for Diversification – Since options contracts are way cheaper, when compared to the underlying asset, you can be exposed to multiple assets and asset classes.
Win-Win – Contrary to what most people say, Options trading is not “I win at your loss”. Most options contracts are written by people looking to hedge their long term positions, and limit their market risk. They are insuring themselves against the risk of market volatility, and by trading in options you’re essentially absorbing their market risk for a premium.
Disadvantages Of Intraday Options Trading
Low Liquidity – Options contracts, while priced way lesser than the underlying asset, can also suffer from limited liquidity. This leads to a wider bid-ask spread, leading to higher chances of lesser than optimal profitability.
Price Movement Reductions – Even if the stock/underlying asset moves favorably, the extent of such price movement can be undermined by the nearing expiry (recall time decay/theta). However, when day trading with options, the time value shouldn’t be an issue as you’re literally holding a position for a day, at the very max.
How To Get Started with Intraday Options Trading
This is one of the popularly asked questions, that we here at Goodwill get from time to time.
How to Get started with intraday Trading? Isn’t Options Trading risky? What are the pre-requisites that I need to have before I begin my journey of trading options intraday?
Here’s everything you need to know to begin your Intraday Options Trading Journey.
Open Trading and Demat Account
The first thing you need to do when you begin your options trading journey is to open your free Demat and trading account online. Different brokers have different fees, and regulations and it is best for you to do your own research and choose what’s the best for you.
One of the best Options Trading Brokers – Goodwill Wealth Management Pvt Ltd. offers the best trading and Demat account online for absolutely free. Goodwill allows you to trade/invest in equities, mutual funds, futures and options, ETFs and Commodities – all from a single margin.
Here are some of the benefits that you can enjoy, should you choose to open a free trading account online with Goodwill.
Lowest Brokerage Ever – Flat INR 11 per intraday trade or 0.02%, whichever is lower, across all segments.
Free Multilingual Support – Language should not be a barrier for your successful trades. Don’t miss out on important trading information and support due to language!
Free Real-time Research Calls – Join Goodwill to enjoy free real time research support from experts in the field.
0 Hidden Charges – Opening Demat and Trading account is completely free. Annual Maintenance Cost is waived off for the first year.
Higher Exposure for Options Trading – Goodwill offers high levels of exposure for options writing. Used in combination with our real time research calls and expert support – sky is the limit for profitable trades.
Free Trainings and Webinars – Don’t know how to use the different financial instruments differently? Don’t worry – Goodwill has got you covered.
Access to Advanced, Free Tools – Along with access to state of the art mobile app – GIGA, you get access to free charting tools and research platform, enabling you to take informed decisions for decisive trades.
Free Intraday Tips delivered to your phone- Access to highly-rated, free intraday tips with an amazing track record, delivered right at your finger tips.
How do I Open a Trading and Demat Account with Goodwill?
Opening a trading and Demat account online is effortless with Goodwill. Fill out your KYC here, and wait for us to do the rest!
Step 1: Enter The Required Personal Details.
Step 2: Fill Pan no, Date of Birth, Aadhar Number and the other required details.
Step 3: Fill Communication Address.
Step 4: Upload the necessary Documents
Step 4.5: Documents that you’ll need – PAN card, Passport Size Photograph, Aadhar Card, Latest Salary Slip/Latest ITR/Bank Statement going back six months.
Step 5: E-Sign and complete the KYC process – Your account will be open for trading shortly.
That’s it, 5 simple steps, and you’re well within your journey to begin employing the best intraday options strategies that you’ve learned through the resources that we’ll mention in the next section.
Where do I learn The Best Intraday Options Trading Strategies?
For you to pick out the best intraday options trading strategies online consistently, it is necessary that you develop a trading system based on some of the popular trading strategies. Different trading strategies vary in complexity, and the time taken to learn, and a good training resource can go a long way in helping you make your trades successfully. Goodwill offers training programs to all our clients, along with calls and webinars to help you generate wealth.
The derivatives market is one of the most profitable markets (definitely the largest) in the world. However, before making trades or investments, make sure you read all the related documents, and understand the associated risks.
What are you waiting for? Open a free Demat and Trading accounts now, and get started with your Options trading journey.