Long-Term Investments
Long-term investments include those held for a year or longer and aim to increase an organization’s income or achieve important objectives. Online share trading is the electronic process by which investors and traders buy and sell securities through brokerage firms.
Nifty Option
Nifty Options contracts give investors the right but not the obligation to buy or sell Nifty options within a specified timeframe and at a predetermined price (strike).
The trader is not obligated to buy the asset but must pay a premium if the Nifty share price does not move in the expected direction. Investors are protected from market fluctuations.
The Nifty Options Lot size is 50.
Nifty options can be easily adapted to market conditions and will help traders adjust and adapt their positions.
Specifications of Nifty Option Contracts
NSE introduced Nifty Options on 4th June 2001
Trading Cycle: Nifty 50 Index Options include four weekly contracts expiring, three consecutive monthly contracts, three quarterly contracts (March, June, September, December), and eight semi-annual agreements. This ensures options with a 5-year minimum tenure. After each contract expires, new weekly options are introduced. Upon the expiration of a near-month contract, new agreements with new strike prices are introduced for both call and put options.
Expiry Day: Nifty 50 weekly options expire each Thursday, while monthly options expire the last Thursday of every month. Contracts expire the day before if last Thursday was a trading holiday.
Strike Price: The number of contracts in index options is determined by the closing price of the index the previous day. The table below is used to determine the strike price for both weekly contracts and monthly contracts. Nifty Index Levels – All Levels; Strike Intervals – 50; and the number strikes at the money level, in the money level, and out-of-the-money levels, which are set at 30-1-30.
The Nifty Option Lot Size is 50. The value of futures contracts for Nifty 50 cannot be lower than Rs. The value of the futures contracts on Nifty 50 cannot be less than Rs.
Order Types—Different order types, such as regular lot, stop loss orders, immediate or cancellation orders, and spread orders, provide flexibility and diverse trading strategies in the financial market.
Why should we invest in Nifty Options?
As we have already mentioned, Nifty Options are very adaptable to the different market conditions. It has the potential to generate additional income. Nifty options also offer different trading strategies, such as buying calls/puts. Spreads, straddles, etc. Spreads, straddles, etc., are used to gain profits from market conditions.
The risk in Nifty Options trading is limited by the premium you pay for the Nifty Option Contract, which is beneficial for traders who are not willing to take on too much risk.
Nifty options protect investors from fluctuating market values, such as a decline in the Nifty share price.
Nifty Options offer greater returns on existing and new investments.
Nifty options allow you to purchase Nifty stocks for lower prices.
Investors can still benefit from Nifty stock price fluctuations, even if they don’t own the stocks.
Due to their unique risk/reward structure, Nifty Options can be combined with other options contracts and other instruments of nifty for the creation of wealth and protection of investments. In options trading, the maximum loss an investor can sustain is just the premium.
Nifty Options allow investors to fix the price of a stock for a specific period at a premium. The premium is a percentage compared to what they would have paid if the investor-owned the stock outright.
Nifty Options have a time-decay element that can work to the sellers’ advantage.
The Risks of Trading Nifty Options
Nifty Options offer a small profit compared to Nifty Futures, where traders are able to take larger positions.
Trading Nifty Options is best suited to experienced traders and those who are well-versed in the markets and trading strategies.
How to Profit from Nifty Options
Take the obligation to cancel trade-in adverse conditions.
Exercise the option contract when market conditions are favourable.
The difference in price between the contract’s end date and the final price is profited.
Nifty Futures
Nifty Futures are a standard contract in which two parties agree to buy or sell the S&P CNX Nifty Index at a fixed price in anticipation of future delivery.
This means that Nifty Future will fulfil the contract, keeping both the buyer and the seller bound to the obligations of buying and selling the assets within a specified time frame.
The Nifty Futures Contract does not require any upfront costs.
Nifty Futures are a derivative instrument that is used to hedge, speculate and arbitrage.
Nifty Futures Contract Specifications
NSE began trading Nifty Futures in June 2000.
Trading Cycle: Nifty 50 Futures have a three-month trading cycle. The near month is the first month, followed by the next month and then the far month. The day after the expiration of the near-month contract, a new contract is created lasting three months. Three contracts are available to trade: mid-month, far-month and near-month.
Expiry Day: Nifty 50 futures expire on the last Thursday of the expiry month. If the last Thursday falls on a trading holiday, then the contracts will expire the day before.
The lot size for Nifty Futures is fifty. The value of futures contracts for Nifty 50 cannot be lower than Rs. The value of the futures contracts on Nifty 50 cannot be less than Rs.
Order Types—Different order types, such as regular lot, stop loss orders, immediate or cancellation orders, and spread orders, provide flexibility and diverse trading strategies in the financial market.
Why should we invest in Nifty Futures?
Nifty Futures is a highly liquid instrument that can be cashed out easily when needed.
With only margin money, you can make a lot of Money with Nifty Futures.
Since market trends are easier to understand, it is not necessary to monitor Nifty index stocks continuously. When an upward trend is expected, a trader may take a long or short position.
With relatively little capital, traders can trade large positions.
The Risks of Trading Nifty Futures
Nifty Futures are at risk of losing unlimited amounts when the market conditions are not favourable.
The Nifty Futures does not have time decay, which is a disadvantage for certain trading strategies.
How to Profit from Nifty Futures?
The sum is then allocated on a daily basis – ‘Market to Market – to the respective futures accounts by the two parties at the end of each trading session. You can also make Money by taking the opposite position.
Considerations when choosing:
What is the difference between Futures and Options? Let’s analyze.
If you have a strong view of the market, then:
Futures can be a good option.
Options offer flexibility in a variety of market scenarios.
Prioritize limited risk
Consider other options.
Futures offer higher leverage but come with unlimited risk.
Considering different market conditions:
Options are available in a variety of ways.
A specific strategy may influence your decision.
Beginners:
Options trading can be perceived as being complex.
Understanding the instrument chosen is essential to futures trading.
Size of the position and risk associated with it
Options usually involve a smaller position underlying, which reduces risk.
Futures contracts that have larger underlying positions can introduce greater risk and uncertainty.
Trading in Nifty futures or options:
Market observations will determine whether you make Money or lose Money.
Confidence in the direction of a market can lead to higher profits.
Lot Size Consistency
The Nifty lot is currently 50.
Market Movements:
Futures show rapid movement, similar to Nifty points.
Options are affected by the strike price and move slowly.
Risk consideration:
Options are valuable when you know your willingness to accept risk.
Trading involves risk.
- Futures trading is a high-risk activity that can result in total losses.
- The premiums paid reflect the fact that options are a low-risk investment.
Conclusion
No one answer fits all. Nifty Options and Nifty Futures both have advantages and disadvantages. Your choice should be based on your trading goals, your risk tolerance and your market analysis. Consider seeking financial advice before trading derivatives.
Frequently asked questions
What is the difference between Nifty and Nifty futures?
Nifty is the NSE benchmark index. It represents the performance of the top 50 listed companies on the National Stock Exchange of India. Nifty Futures are standard contracts that allow traders to speculate on Nifty 50’s future value. Nifty Futures are standardized contracts that will enable traders to speculate or hedge against future changes in the index.
How to Buy Bank Nifty Long-Term?
Open a Demat Account, do your research, and select a Bank Nifty financial institution that has growth potential. Enrich Money can help you place a purchase order for Bank Nifty stocks, taking into account factors such as the financial health, performance and growth prospects of your chosen bank. Monitor your investment regularly and keep up to date with market and economic conditions that affect the banking sector.
How to Deal with Nifty Futures
Open a trading account and deposit the required margin. Then, place your buy or sell order through Enrich Money based on the market outlook. To make informed decisions, monitor the market and set a stop-loss order to manage risk. Futures trading can result in significant gains or losses due to leverage.
What is the impact of lot size on long-term investment decisions between Nifty Futures vs Nifty Options?
The lot size will influence the amount of capital needed. Options usually have a smaller position underlying, which reduces risk when compared with futures that have a larger position underlying.
Should novice investors choose Nifty Options or Futures for long-term investment?
Nifty Futures may be easier for beginners to understand, but they should still take the time to grasp this instrument fully. Options are complex but offer benefits for risk management. They are suitable for beginners who have a strategy in mind.