The following can be considered as some of my reasons for suggesting futures/stock over options intra day -
1. Intraday trading is speculation on direction. So for traders who are really good at getting their direction right future or stock will give them maximum profits when they do get it right and also there is no shortage of liquidity or volume on futures. Regarding Brokerage, STT etc. If the targets based on a very small rise ( 0.4 percent ) then i guess futures may not be the best thing.
2. Options pricing can change as per market view. if the nifty rises fast towards 6000 you notice the 6000 call is going at say 53 rs on monday. you ll be tempted to buy it hoping the nifty gains another 50 odd points. now here s what can wrong with options in such a scenario .
- if nifty halts its rise but still doesn't drop, you will notice that what you bought for 53 is suddenly only 50. the pricing of options is not as straight forward.
- if the nifty does rise it depends on how fast it rises and also on how much it rises. you could potentially see another 20 point rise but get only a 5 rs gain in your option.
- if the nifty does just take a small correction and goes to 5980 and if your
trading a stop loss. you ll be stopped out even if the nifty rebounds. Also when it does rebound back to its original level. the price of the option will most likely not be 53 but say 52.
Options are best suited for month end position strategies, their strength is their flexibility not so much the leverage because an option will not gain as much as a future. An In the money call option not gain as much a future ( it usually gains something like 70 percent of the future ), similarily it wont lose as much as well.
So decisions on futures depends on only a few things :
1. Bullish or bearish
2. Stop loss and target
On an option decisions should be based on
1. bullish or bearish or neutral
2. time frame for target
3. appropriate hedge or counter solutions.
4. strike price.
5. if simply bullish - Short a put or long a call ( big difference in terms of risk n reward and margins required ) and if bearish vice versa.
I m personally not so strong technically. Which is why i stick to options. For someone as strong as Mr. Raunak I would definately suggest futures for intraday. Options are great, but they need to exploited for their strength - leverage and flexibilities not their weakness - sluggish behavior.
Please do feel free to correct me if wrong.
Regards,
Siddharth
Hi Siddharth
I second your views in many ways. What I do add from my side has to do with technicals and market development. Also in option strategy trading it is very important to recognize the direction of the market. Here an example from its best and only traded on market moves in either direction with only one option or future at the time :
http://www.traderji.com/advanced-tr...vertical-spreads-iron-condors.html#post488321
What you see is the end result of only trading any direction of the market with two derivatives.
I trade on the CME and so I can do such strategies. I am clear, that this not can be traded in India, as regulations from your exchange and margin calculations from your brokers are not up today.
As we here in a learning forum, we have to hear and see things from different ways. This trade is a different way of what you say.
Even than, I am very clear, that many option strategies are quit nonindependent on direction of market. Some of this strategies are based in far away months, which again is not possible to trade in your home market and which I prefer to trade, as they are really very low risk.
Nearly every option strategy which you can trade in India is only makable in a certain time frame of max 30 days, as out of the month option in India are nearly not traded or have a big spread. Strangles, straddles, ratio back spread, back spreads and credit spreads are the strategies you can trade in your home market.
Some of them do less depend on the direct move of a market and I also agree with that.
Take care
DanPickUp
