One can take a position in the options trade by exchanging premiums where the buyer pays a premium amount to the seller. But as a trader, Can I start option trading with 1000 rupees?
Well! this question is raised by most of beginner options traders, but the answer depends upon many factors.
One of those factors is whether you want to buy or sell option. Other than this which strike price do you want to buy or sell?
Getting answers to all this, help you in getting clarity on whether you can trade in options with 1000 rupees or not.
How Much Money Do I Need to Start Options Trading?
Trading is done with the objective of earning profit and high returns, but how much amount is required to begin trade, especially option trading, is the major concern among traders.
As already discussed, this depends upon various factors and also on your risk appetite.
Here, if you want to know whether you can start option trading with 1000 rupees for this here are some of the things that need to keep in mind.
Type of Trade
Stock trading vs options trading has a huge difference especially when it comes to capital requirement. Further, how much money is required for options trading also depends upon the fact that whether you are opening a position as a buyer or seller.
This is because, for option buying one needs to pay a premium while sellers have to keep and maintain a required option trading margin in the trading account the value of which is quite high and depends upon market trends, volatility, etc.
Even to sell 1 lot of Nifty the seller has to maintain around ₹1 lakh in the trading account. So, one can do option buying however, if you are aware of how option selling works, then you might have an idea of the margin that makes it impossible to sell options with low capital of ₹1000.
Position Sizing
Moving towards the next important parameter, Position Sizing.
1 lot of Nifty has 50 units however, if you want to make a good profit, it is important to trade in quantity. So, if you want to make a higher profit in option trading in terms of value, then you have to buy a higher number of lots, i.e. increase the position sizing.
However, if you are a trader who generally trades ITM, ATM, or slightly OTM options, then with the increase in position sizing the capital requirement also increases.
Moneyness in Options
In options, the strike price with intrinsic value has a high premium value but then there are Out of Money options that only have time value and are comparatively cheaper. All these details are what option chain indicates and help a trader to pick the strike price accordingly.
There are deep OTM options of Nifty that can be traded at the low value of ₹10 or lower and hence can be bought with a low capital of ₹100o but at the same time these options often have lower liquidity and wider bid-ask spreads. This makes it harder to execute trades at desired prices.
For example, currently NIFTY is at ₹18,361.95.
The deep OTM Call option has less LTP in options. Thus, for a Strike price of ₹19,000 the premium is ₹1.05. This means you can buy one lot of Nifty for ₹52.5 and can buy around 18 lots of Nifty. But these options are risky as they expire worthless on expiry.
Deep OTM options are for the option seller who enters the market to earn less profit through premiums.
IV in Option Chain
If you are looking for a cheap option to trade with a low capital of 1000 rupees then it is important to consider the IV value of the option and the corresponding strike price. The higher the IV value more will be the premium and vice versa.
Generally, options with far expiry have a high IV and hence a high premium. Also, deep ITM and OTM options have high IV values.
Thus, when looking to earn profit in options, consider the IV along with time decay in options.
Risk management
If you are aware of how to do option trading then you might be aware of the risk associated with options especially when you have a limited capital base. With low capital it is important to be mindful while taking positions.
Keep in mind that small capital can restrict your trading opportunities, but you can use it to learn options trading strategies and practice them.
If you get intrigued by options trading and want to learn more about it, you can reach out to Stock Pathshala. We have a set of chapters on Options trading in our stock market courses that can help you with thorough research, risk management, and other key factors before entering the options market.
Conclusion
Option trading can be started with less capital and one can either make huge capital or lose the entire amount. This generally raises a question, is option trading gambling.
Well, this is not true and profit and loss in options trading majorly depends upon facts which differentiates it from gambling. It is therefore beneficial to educate yourself about option trading strategies and concepts. Options can be complex instruments, and understanding how they work, including factors like theta for time value and vega for implied volatility, can enhance your decision-making process.
The small capital allows option buyers to take position in the market but at the same time decreases the possibility of high profit or returns.
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