Reading the Bank Nifty Option Chain is only the first step; you also need to interpret it correctly to understand its potential for profit or loss for a trader.
- Out-of-the-Money (OTM) Options:
- OTM options are when the strike price is far away from the current market price, and the chances of the option being exercised are lower. Therefore, such options are considered risky and have lower premiums. However, in some instances, these options can offer high returns with very little risk involved. In-the-Money (ITM) Options:
- ITM options are when the strike price is closer or equal to the current market value. Therefore, the chances of the option being exercised are higher. These options are considered to have lower risk as they already have an intrinsic value. Near-the-Money (NTM) Options:
NTM options are when the strike price is close to the current market price. The premium value of these options lies somewhere between OTM and ITM options.
Assuming the current market price of Bank Nifty is 35000, which strike prices should you choose? You can opt for ITM options with a higher delta value such as 34900, 34800, and so on. Alternatively, you can opt for OTM options with lower premiums such as 35400, 38700, and so on at a lower delta value.
However, choosing the right option contract is not an easy task, and it requires the help of option trading experts or deriving insights from market intelligence platforms such as Finviz, TradingView or IIFL Markets. You can use the strategies or insights from these platforms to make informed trading decisions.
Conclusion
The MCX Option Chain is a powerful tool in trading, and understanding it can help you maximize your profits. Understanding the basics of option trading, the components of the Option Chain, and interpreting the table correctly can make an immense difference in your trading journey.
However, trading in options can also be risky, and it’s always wise to consult with an option trading expert or insider for guidance on risk management and trading strategies. Take your time to learn how to read the Bank Nifty Option Chain, make informed trading decisions, and always remember to plan your trades; otherwise, the risk of losing money could be pretty high.
