We will be discussing the BANKNIFTY Options which is traded on NSE in INDIA. So if you are from any other Country you can read it as an information purpose. In this guide, we will be learning what is BANKNIFTY and how you can earn consistent money using BANKNIFTY Options.
This guide is for people who are familiar with atleast basic knowledge of options like what is Call Options and Put Options. If you don’t know it then you can go ahead read by clicking here. So, let’s discuss in details about what should we know and follow to learn and earn consistent money from trading options.
What is BANKNIFTY?
BANKNIFTY is Index which is the collection of all the Banking Sector Share combined in one index to Trade. So you can think of taking all the current share price of SBI, HDFCBANK, YES BANK, AXIS BANK, ICICI BANK etc. and making one share as BANKNIFTY.
Hence the movement of all the Bank share prices under BANKNIFTY moves the BANKNIFTY share price. So if we talk in the most common sense its combination of all the bank sector share mixed or combined in one share which is called a BANKNIFTY Index Option. It’s similar to NIFTY Index which is the combination of Top 50 performing companies on Sensex. And their movement decides the NIFTY Index price.
What is BANKNIFTY Call Options?
You should read before what is Call Options first Here and then come back. So, each strike price of BANKNIFTY has Call Options. Suppose BANKNIFTY is currently trading at 20000. Then there will be Call Option for BANKNIFTY at 20000 and similarly for every 100 points below and above.
Since BANKNIFTY is trading at 20000 as per example then Call Option at 20000 with some XXX price means that you are betting that BANKNIFTY will expire above 20000 + XXX to make you profit on that Call Options. And if BANKNIFTY expires at or below 20000 on Month Expiry date then you will lose XXX. Here XXX can be any amount depending on which points its trading on that particular day.
So in the above image, you can see that I traded BANKNIFTY Option thinking that it will go above 22600. I closed once it went in Profit. Similarly, we can tell that is how Put Option Works for BANKNIFTY. I will be re-writing above paragraph for Put Options.
What is BANKNIFTY Put Options?
You should read before what is Put Options first Here and then come back. So, each strike price of BANKNIFTY has Put Options. Suppose BANKNIFTY is currently trading at 20000. Then there will be Put Option for BANKNIFTY at 20000 and similarly for every 100 points below and above.
Since BANKNIFTY is trading at 20000 as per example then Put Option at 20000 with some XXX price means that you are betting that BANKNIFTY will expire below 20000 – XXX to make you profit on that Put Options. And if BANKNIFTY expires at or above 20000 on Month Expiry date then you will lose XXX. Here XXX can be any amount depending on which points its trading on that particular day.
In Above image you can see that I sold a PUT Option of BANKNIFTY. I am betting that BANKNIFTY will be trading above 20800 as it is a PE Sell. So you can think of PE sell as CALL Option and CE sell as PUT Option. Note that CE denotes CALL OPTION and PE donates PUT OPTION.
How to trade in BANKNIFTY options? Strategy To Earn Money Consistently Trading BN Options
So, the strategy I am going to discuss is little risky but if done correctly with Risk Management then you can easily make a lot of money using this. The Strategy which I am talking about is Calendar Spread. So in this strategy will see what is the current resistance and support of BANKNIFTY.
Then we will sell CE for Resistance and PE for Support hoping that in that month or week BANKNIFTY will be in between that Range. So suppose BANKNIFTY is trading at 20000 today. And you are thinking that BANKNIFTY will be between 18000-22000 by end of this week expiry. Then you should Sell 18000PE which constitutes that it will be above 18000 and Sell 22000CE which constitutes that BN will be below 22000.
So, you will be only making loss once this range is broken on expiry day either side. To make this trade with limited loss and little less profit you can buy 17800PE and 22200 CE which will limit your loss to less than Rs 4000 if you are trading one lot i.e. 20 shares of BN each side.
This strategy has made me lac of rupees if done correctly. Mind you it also made me losses a lot unless I learned how to trade with patience and consistency on my strategy. There can be losses and there is no guarantee but again if done correctly which will come with experience.
I have a lot of other strategies which I will discuss later in other articles. So keep following us on Facebook, Twitter and Instagram to know the about another post on BANKNIFTY Options Trading Strategy to Earn Money Easily. If you have any query or suggestion let me know in the comment section. Also, let me know if you liked my post about What is BANKNIFTY.