Too much risk in trading BankNifty or its options. Views welcome.

#1
I was trading regularly in BankNifty naked options intraday for last couple of months. Whereas i made some really good profits, but sooner or later i realize there is too much risk on it, and almost deciding to stop trading in BNF options. Why?

Too much volatile, high beta.
The average true range on a BankNifty option is around 15-20 points, for future it is 30+.

So depending on your account size, lets say you have 1 lakhs account. 2% is the max. loss per trade/day, stands out to 2000/-. So, if you put a stoploss of 16-17 points outside ATR, at any point of time, you should be ready to have a minimum of 2k+ loss on every single bankNifty options trade for a decent lot size of 200.

(I have created this thread from options perspective, since thats what i traded on, but it equally applies to futures)
Views welcome :):)
 
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primitivetrader

Well-Known Member
#2
problem is with the capital you are assuming. with 1 lakh its just not feasible to trade bnf/option as you are in a too tight position. to trade it one need to have min 5 lakh as per me else its not worth taking the pressure of day trading bnf/option.
 
#3
problem is with the capital you are assuming. with 1 lakh its just not feasible to trade bnf/option as you are in a too tight position. to trade it one need to have min 5 lakh as per me else its not worth taking the pressure of day trading bnf/option.
Does it make any difference if you have 5 lakhs?
Your mistake is in assuming same 200 lot size even with 5lakhs capital.

If you do the math there with 5lakhs, your position sizing with 2% max drawdown comes to 500 ~ (520 in whole-number lot size), and with an ATR of around 20-22 stoploss, the loss comes to around 10,000/- + Or with a very close stoploss of even 12 points, it comes to 6k.

So, the point is not the amount of capital, but the high ATR value which is concerning.
 
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#4
Trading 200 BN options in Rs 1 L capital is clearly over leveraging and as we are talking of ATR I am assuming that it is a overnight hold........even considering very conservative ATR of 100 points,you need Rs 2 L min for trading 40 qty if you are keeping overnight positions. For day trades in BN options one can keep small stop of 20-25( Equivalent of 30-40 points in BN Futures) points and trade but there also max 2 lots one can trade.

Smart_trade
 

pannet1

Well-Known Member
#5
i hope this is not off topic. if its so, my apologies. if you tried to buy an option the ask price is high and if you want to sell the price is very low. if you are a retail trader you are trading against institutions and props that are trading with bots & algos.

how do you determine what price you are want to get in. after deciding how do you evade the bots and get in with exactly the same price you want. lets say you have enough time to get in (because its a fresh entry) between the time you decide and actually your order gets filled, how do you manage the change of the fair value (or the price you wanted to get in).

the algo and bots managing the orders are the biggest threat for retail traders than any other thing. i am afraid its the least discussed topic here in traderji IMHO.
 
#6
i hope this is not off topic. if its so, my apologies
Unfortunately it is, but no problem. :D

how do you determine what price you are want to get in.
I always buy "in the money" or "at the money" options when the spot is on a breakout, and i mostly trade intraday.

after deciding how do you evade the bots and get in with exactly the same price you want. lets say you have enough time to get in (because its a fresh entry) between the time you decide and actually your order gets filled, how do you manage the change of the fair value (or the price you wanted to get in).
You never get the price you want, if it is on a breakout. I always set the limit price equal to or slightly higher than the ask-price and my order gets filled always (If the spread is slightly huge, then i avoid buying it). Also, i always set a target-profit-price depending on the next pivot. Many a times, that has meant i missed some big good move, as the order exits at my limit target price and then continues its journey, but there are both pros and cons.
 
#7
Unfortunately it is, but no problem. :D


I always buy "in the money" or "at the money" options when the spot is on a breakout, and i mostly trade intraday.


You never get the price you want, if it is on a breakout. I always set the limit price equal to or slightly higher than the ask-price and my order gets filled always (If the spread is slightly huge, then i avoid buying it). Also, i always set a target-profit-price depending on the next pivot. Many a times, that has meant i missed some big good move, as the order exits at my limit target price and then continues its journey, but there are both pros and cons.
But we can track the news

Sent from my A0001 using Tapatalk
 

superman

Well-Known Member
#8
Well Volatility is the trademark of trading ! We enjoyed almost 2-3+ years of low volatility and now it has come back . Expect this to be the normal from now on and its good for market also. 'Certainty' is the biggest risk in market as market can directly go from 1SD to 3SD levels. Your naked positions were always at risk ; its just that it never got tested properly. Run your strategy on 2007-2008 and you will understand what risk really means !
 

onequorauser

Well-Known Member
#9
I think the volatility is more in last two months due to specific reasons. The first one being Gujarat election last month followed by the winter session where people were expecting something for PSB re-cap and this month it has been high due to election.

Just look at the premiums... even till yesterday significantly OTM options had hefty premiums. Let the budget pass and we might be looking at slightly different picture..unless something else creeps up
 

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