Those who have been into bank nifty option trading have devised multiple bank nifty strategies which will help them make better trades in the future. Due to its high co-relation and weightage in the NSE benchmark index, Nifty, Bank Nifty gained great significance among investors.
Launched in 2000 by India Index Service and Product Limited (IISL), Bank Nifty is NSE’s sectoral index and is one of the most heavily traded indexes in the F&O market. One of the highest attractions in bank nifty trading is that it is highly volatile and allows traders to generate a quick profit. Also, due to its high co-relation and weightage in the NSE benchmark index, Nifty, Bank Nifty gained great significance among investors.
This index trading option is brilliant as it comprises 12 highly capitalized and the most liquid banking sector stocks traded in NSE. Those who have been into bank nifty option trading for years have devised multiple bank nifty strategies which will help them make better trades in the future.
Whenever looking for ‘my trade options,’ bank nifty holds great importance as, here, the share prices and values are displayed on a real-time basis during the NSE trading hours. A bank nifty option strategy can be curated for various purposes like introducing index funds, new ETFs, and other structured products and benchmarking fund portfolios. The top 10 bank nifty companies with the highest weightage are – AU Small Finance Bank, Axis Bank, Bandhan Bank, Federal Bank, HDFC Bank, ICICI Bank, IDFC First Bank, IndusInd Bank, Kotak Mahindra Bank, and Punjab National Bank.
Top 4 bank nifty option buying strategy
With the growing trading margin and awareness, options trading has significantly increased among traders. Nifty and bank nifty are the popular indices in option derivatives, and their improved buying strategy results from the opportunity it offers to make money. Below are the top 4 bank nifty strategies that every trader must know.
- Naked puts or calls – Buy the put option during the market’s low point. The more the nifty falls, the higher profits are generated. Buying the call option during the market’s high end is a good strategy. The more the market rises, the higher profits will be incurred. Putting a stop loss is mandatory in this strategy.
- Bull call spread – If you wish to buy bank nifty stocks during the market rise, using the bull call spread strategy is the best option. This strategy gives a good amount of money when the index goes up.
- Short straddle – This bank nifty strategy generates good results when the market is in a defined range. Here the trader sells the money call option and a put option with the same strike price and expiry date. You grab the maximum profits when the index doesn’t show much movement. However, the losses are extreme when the bank nifty moves beyond the breakeven point.
- Short iron butterfly – A good bank nifty strategy today will result in better outcomes for tomorrow. This strategy contradicts the risky short-straddle
- strategy, as the losses here are less and much defined. Profit is also defined, and rewards are higher than risk.
What is the difference between nifty and bank nifty
Nifty is considered a much broader term, and bank nifty is a part of nifty. Like bank nifty, the nifty index also consists of the most liquid and highly capitalized stocks from the National Stock Exchange. However, the major difference is that nifty consists of the top 50 stocks from varied sectors like automobile, pharma, IT, bank, etc., hence also called Nifty50. On the other hand, bank nifty, also known as Nifty Bank, consists of the top 12 stocks only from the banking sector, which is a part of Nifty50.
If you are looking for an excellent strategy to invest in index funds, nothing is better than nifty. Bank nifty strategy is profitable primarily for intraday trading to book short-term profits. Bank nifty is more volatile than nifty. For example – If nifty rises to 1%, then bank nifty goes 1.5% higher. Although bank nifty has more potential to make profits, the risk is also higher than nifty.
For options trading in nifty, one lot = 50 quantities, and for bank nifty, it is 25 quantities. As nifty consists of stocks from multiple sectors, it depicts the overall economy’s performance. On the contradictory, bank nifty indicates only the banking sector’s performance.
Choosing to trade between bank nifty and nifty options is tricky. Still, if you are a beginner, maximum traders trade in the nifty index is a better option as it is less volatile and much more familiar. If you stand somewhere between intermediate and advanced trading levels, traders prefer bank nifty as it’s more rewarding and makes them reap higher benefits due to more considerable volatility.
