One question which I often get asked is what is the minimum capital one requires to trade options .
Here is my take on this topic : A ๐งต
Here is my take on this topic : A ๐งต
The least notional value contract as of now is a lot of Nifty.
50*18000 = 9 lacs approx
investopedia.com
50*18000 = 9 lacs approx
investopedia.com
Looking at this from an option buyer's perspective, the requirements for a seller are much higher as selling has unlimited risk.
Let us also assume the options buyer trades through bull or bear spreads with a debit which he knows is his max loss
Let us also assume the options buyer trades through bull or bear spreads with a debit which he knows is his max loss
The trader trades on 100 point difference spreads ( say buy 17600ce and sell 17700ce OR buy 17600pe and sell 17500pe. Spread theory states that for a 100 point spread, trade max debit should be 50% of strike difference, i.e, 50 points
Assuming trader loses the whole max debit, his loss in a single lot of spread is 50 points, In rupee terms, it's 50*50 = Rs.2500. This is the minimum loss one has to assume if trading 100 points spreads on Nifty
Now we know that one must limit max loss in a trade at 0.5% of capital when one starts to trade options ( one can risk more, say 1% or 2%, but that brings in more risk in terms of deeper drawdowns when on a losing streak). This 0.5% is a conservative number for survival
So, if 0.5% is Rs.2500, 1% is 5000 and 100% is Rs, 5 lacs
So, to trade options the minimum capital required is Rs.5 lacs at the very minimum. If you are trading with lesser capital, by default you are taking higher risk per trade and hence one losing streak can blow you up
So, to trade options the minimum capital required is Rs.5 lacs at the very minimum. If you are trading with lesser capital, by default you are taking higher risk per trade and hence one losing streak can blow you up
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