Some few reasons why a fair number of professional traders Surgical prefer index derivatives.

  1. Liquidity – Nifty Derivatives are among the most liquid instruments in the world. You cannot ask for more. When you have big money at stake you cannot afford slippages.
  2. Predictable – Ask any index trader and they would tell you based on their observation or intuition that indexes are very predictable. Same would show up if you run analytics on the data.
  3. Leveraged – Derivatives by their nature are leveraged instruments and hence are more cost effective when it comes to trading.
  4. No Manipulation – Indexes cannot be manipulated the way individual stocks can be. Since the index itself is a derivative of the several stocks.

Many investors have avoided options, believing them to be sophisticated and, therefore, too difficult to understand.

Many more have had bad initial experiences with options because neither they nor their brokers were properly trained in how to use them. The improper use of options, like that of any powerful tool, can lead to major problems.

Finally, words like “risky” or “dangerous” have been incorrectly attached to options by the financial media and certain popular figures in the market. However, it is important for the individual investor to get both sides of the story before making a decision about the value of options.

How Profitable? :

It will depend on your style and strategy of trading.

For the purpose of this answer, I would say that you can make unlimited profit in a single day and you can lose 100% of your money on the same day. This possibility of very high gains attracts traders to options and makes trading exciting.

I shall illustrate with examples:

Remember the Surgical Strike made by Indian Armed Forces across the border. The day was September 29, 2016. It was option expiry day, being the last Thursday of the month. Market had opened higher and then crashed around noon time.

Image of nifty on 29th 2016

Put Options rose in value as a result of this and Call Options lost Value.

This Option opened at Rs. 7.95, touched a low of Rs. 4.25, went to a high of Rs. 189.60 and closed at Rs. 161.85.

The Option could have been bought for Rs. 5 and sold for Rs. 180 on the same day which is 3500% profit.

Yes, such profits are possible !

On the other side, NIFTY 8600 CALL on September 29, 2016:

It opened at 189, went up to 193 and ended worthless. The entire money gone in one trading session. This is how profitable or loss making Options trading can be.

How to find such winners will be discussed on this blog in future course, found interesting subscribe to Email alerts for daily Updates & find us on YouTube channel for daily chart updates.