I started day trading with Nifty Future few years back. I was trading it comfortably as my size was too small. Later on the NSE decided to increase the lot size and that is when I started thinking about trading options. Now I mainly trade ATM or ITM option strikes. Only on certain days like expiry day, major event day I prefer to trade the Futures.
There are certain advantages for trading options. The biggest advantage of day trading options is that it is very much cost effective. Let me illustrate the cost-effectiveness by calculating the total cost involved like this,
Cost of buying and selling one lot of Nifty Future (75) @ 8200 with minimum brokerage in market available today is something like this.
Buy + Sell 8200*75= Total brokerage(18) +STT(61.5)+Transaction charge(30.75)+Service tax(6.83)+Sebi fee(2.46)+stamp duty(21.5) = 141
Whereas for option the same is like this,
Buy + Sell 8200 (premium 120 *75= Total brokerage(18) +STT(1.53)+Transaction charge(11.70)+Service tax(4.11)+Sebi fee(0.04)+stamp duty(1.5) = 37
By trading options, I save here more than Rs. 100 per trade per lot, so I thought trading options is the only way left to keep the stop loss at bare minimum level and cost under control. My number of trades average around 40 per month and by trading options I will be able to save around Rs. 4000 per lot per month. Now if I multiply that with the number of lots that I trade nowdays my total savings will be around Rs. 40,000. Every penny saved here is actually earned.
Other advantage is that ATM and ITM option strikes are very much liquid, having more volume than Futures, and there is very little to no slippage. You can get your order filled with even 0.10 difference between trigger and order limit price whereas for Futures it will be 0.25 to 0.5. So here you also save some money. Even on very conservative basis if I count saving a slippage of 0.2 points, it will help save around Rs. 600 per month per lot. Also as a short term trader, one more advantage is there and that is I do not need to bother about time decay of the premium. I do not need to bother about the open interest as I trade pure price action. I also do not need to bother what the Greeks are.
Let me confess it is really fun trading options. I wish I could have started trading them much earlier in my trading career. Anyway, it is always “better late than never.”
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