Nifty basic query

megapixel

Well-Known Member
#11
Thanks . That helped.

I still dont understand why many people say Future and Option trading is risky .......I get one month expiry time here ....one month time is enough for an index to move up to book profit ... one can buy nifty low and sell nifty high within one month to book profit.

Where is the risk here ? can you please explain risk here with an example . I don't get this part.
 
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#14
Options are riskier because they bleed premium throughout the series. Nifty may be at a premium or discount. Anyway, if you buy nifty futures and suppose it doesn't go up, but crashes down, and doesn't recover for rest of the series..
 
#15
Thanks . That helped.

I still dont understand why many people say Future and Option trading is risky .......I get one month expiry time here ....one month time is enough for an index to move up to book profit ... one can buy nifty low and sell nifty high within one month to book profit.

Where is the risk here ? can you please explain risk here with an example . I don't get this part.
Leverage.
For buying 50 Nifty ETF, when Nifty at 5000, you need to pay 250,000 approx.
For buying/selling Nifty Futures for the same 50, you need to pay only about 10% of this amount, that is about 25K. Everyday, you will get or need to pay depending on whether you had made loss or profit. A 10% drop when you are long, will wipe the 25k off.
Basically the risk is because you can take far higher positions.
 
#16
Thanks . That helped.

I still dont understand why many people say Future and Option trading is risky .......I get one month expiry time here ....one month time is enough for an index to move up to book profit ... one can buy nifty low and sell nifty high within one month to book profit.

Where is the risk here ? can you please explain risk here with an example . I don't get this part.
Brother , if u can do that pls share...:eek:
 

Arjun20

Active Member
#17
Thanks . That helped.

I still dont understand why many people say Future and Option trading is risky .......I get one month expiry time here ....one month time is enough for an index to move up to book profit ... one can buy nifty low and sell nifty high within one month to book profit.

Where is the risk here ? can you please explain risk here with an example . I don't get this part.
Megapixel
suggest you first go thru basics of futures and options. You can find it on ICICI Direct web. I read it long back, but it surely helped me to understand basics.
 
#18
Thanks . That helped.

I still dont understand why many people say Future and Option trading is risky .......I get one month expiry time here ....one month time is enough for an index to move up to book profit ... one can buy nifty low and sell nifty high within one month to book profit.

Where is the risk here ? can you please explain risk here with an example . I don't get this part.
Imagine you buy 100 Nifty at 4900, now Nifty slips to 4860, what will you do, book the loss or hold on? You hold on and next day Nifty opens gap down 50 points and you are at 4810 with a loss of 9000? Confusion - hold on and wait for it to move up and book your loss? Thats the risk with Nifty :)

And by the way, its everyone's dream to buy low and sell high, only problem is when you buy low, it may actually be high and market may slip from there :(
 

megapixel

Well-Known Member
#19
Imagine you buy 100 Nifty at 4900, now Nifty slips to 4860, what will you do, book the loss or hold on? You hold on and next day Nifty opens gap down 50 points and you are at 4810 with a loss of 9000? Confusion - hold on and wait for it to move up and book your loss? Thats the risk with Nifty :)

And by the way, its everyone's dream to buy low and sell high, only problem is when you buy low, it may actually be high and market may slip from there :(
agree .. by the way , how long you can hold on nifty....is it just two days only ?
 
#20
agree .. by the way , how long you can hold on nifty....is it just two days only ?
You can hold on till that month's contract expires.
For example, if you buy Nifty futures today, it expires on the last Thursday of the month, i.e: 26th Jul, so you have 23 days to hold on (technically).

Also you can buy next month's or even September's Nifty future right now and hold on till it expires. Only issue with that is trade volumes will be lesser.

And regarding options, the risk involved is that your option premium can become zero!! For eg: you buy Nifty 5100 call at lets say 20. If Nifty falls steeply, the premium can even become zero - so in options you can lose all your money. Also, as options expires, there is something known as decay which ensures that your value may not rise to the same levels as Nifty does.

So, technically you can buy Futures/Options and hold on for a month, hoping that market will rise - but in the event of negative trends in economy, bad news, etc - market can crash and you can suffer huge losses.

So while trading Futures/Options, it is mandatory to have a stop loss and a target too!!
 

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