While planning to start options trading, most beginners wonder which one is better to trade between Nifty vs Bank Nifty Options Trading. While looking into the different youtube channels for trading, one may see many top options traders trading with Bank Nifty. On the other hand, Nifty Index trading is covered more aggressively in news channels and by market experts.
Looking into these, obviously, it becomes difficult for beginners to understand and choose which one is better to trade. In this article, we’ll discuss the difference between Nifty vs Bank Nifty Options Trading to find one which one is better for option traders. Keep reading to find out.
Nifty Options Trading
Nifty is the most popular index in India. From beginners to advanced traders, all are aware of this benchmark index by NSE. Nifty is the barometer of the market and tells how the overall economy is doing. It comprises of the top 50 companies listed on National Stock Exchange based on their free-float market cap.
While trading in Nifty, Options traders need to look into its top constituents to understand which stocks are moving the index. If a consistent with high weightage is going higher, it may push the index higher and vice-versa.
The top Constituents of the Nifty Index according to their weightage in the Index as of 30 September 2022 are:
- Reliance Industries (10.84%)
- HDFC Bank (8.27%)
- ICICI Bank (7.94%)
- Infosys (6.84%)
- HDFC (5.48%)
- Tata Consultancy Services (4.07%)
- ITC (3.86%)
- Kotak Mahindra Bank (3.53%)
- Hindustan Unilever (3.18%)
- Larsen & Turbo (2.95%).
The top five constituents of Nifty i.e. Reliance Industries, HDFC Bank, ICICI Bank, Infosys & HDFC make up 44.85% of the index and are of utmost importance to check while tracking this index. A movement in these constituent stocks can move the Nifty significantly. However, big movements in other constituent stocks can also move the index.
As Nifty is the combination of multiple stocks from different sectors with different weightage, it does not get highly volatile unless there is a piece of big news about the entire economy.
While doing Options Trading in Nifty, Traders need to buy at least one lot of 50 quantities as Options Buyer. For example, if you want to buy Nifty 17800 PE (put) option for 1 lot of 50 quantities for month-end expiry, the margin required will be Rs 4,195.
Bank Nifty Options Trading
Bank Nifty is the darling of Options Traders as it has the potential to make more profits. However, the risk involved is also higher.
A major reason why traders follow and trade in this index is because Bank Nifty is easier to track as the main constituents involve only 5 companies i.e. HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, and SBI and they make up around 84% of the constituent of the index.
The Top Constituents of the Bank Nifty Index according to their weightage in the Index as of 30 September 2022 are:
- HDFC Bank (26%)
- ICICI Bank (24.97%)
- Kotak Mahindra Bank (11.11%)
- Axis Bank (10.93%)
- State Bank of India (10.87%)
- IndusInd Bank of India (6.17%)
- AU Small Finance Bank (2.34%)
- Bank of Baroda (1.97%)
- Federal Bank (1.90%)
- Bandhan Bank (1.61%)
Tracking the top five constituents of Bank Nifty is of utmost importance and will help in tracking the major movements in Bank Nifty Index.
Bank Nifty is more volatile with a standard deviation of 1.55. Any news regarding the banking sector and top constituent companies can make this index move significantly. Alongside, any news in the economy or major movement in market benchmark indexes can also shake Bank Nifty.
Let’s take an example of trading in Bank Nifty. While doing Options Trading in Bank Nifty, Traders need to buy at least one lot of 25 quantities as Options Buyer. For example, if you want to buy Bank Nifty 41200 CE (Call) options for 1 lot of 25 quantities for month-end expiry, the margin required will be Rs 4,296.
Nifty vs Bank Nifty Options Trading
Here are the key differences between Nifty vs Bank Nifty Options Trading based on different factors:
1. Lot Size: For Options Trading in Nifty, 1 lot=50 Quantities. For Bank Nifty, 1 lot=25 Quantities
2. Constituents: While trading in Nifty, traders have to look into different constituents and the overall market. On the other hand, while trading bank nifty, looking into the banking industry and top constituents can help the trader understand the movements. Bank Nifty is comparatively easier to follow than Nifty Index.
3. Volatility: Bank Nifty is more volatile compared to the Nifty. If Nifty moves 1%, Bank Nifty can easily go 1.5% higher. Hence, Bank Nifty has the potential to make more profits, but the risk involved is also higher.
Overall, for beginners, it is better to start options trading with Nifty Index as it is less volatile and most traders are already familiar with this index.
As one gets more experience and becomes an Intermediate to Advanced options trader, trading in Bank Nifty is more rewarding because the traders can take the benefits of volatility to make higher benefits.
In this article, we discussed the difference between Nifty vs Bank Nifty Options Trading to understand which one is better. The basic difference between trading in these indexes is based on lot size, volatility, and constituents.
For trading in Nifty, 1 lot=50 quantities; while for Bank Nifty, 1 lot=25 Quantity. Looking into constituents, Nifty tracks the overall market, while Bank Nifty only looks at the banking sector.
For those looking for making bigger profits, trading in bank nifty is more rewarding as it is more volatile and can result in bigger rewards (and obviously bigger risks too). Traders are recommended to use stop loss and hedging strategies to limit their risks and increase profits.
That’s all for this article on Nifty vs Bank Nifty Options Trading. Do comment below if you have any doubts. Have a great day and Happy trading!
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