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Unlocking the benefits of futures and options trading in Bankex and Sensex

09 Feb 2024

Introduction

The Bombay Stock Exchange (BSE) has made waves in the trading industry by relaunching its Sensex and Bankex futures and options contracts. They were relaunched on 15th May 2023. This move has sparked excitement among traders and investors, offering a new dimension to their trading strategies. 

This blog will explore the benefits of trading in these BSE F&O contracts and how they can potentially enhance your trading experience.

What are Sensex and Bankex?

Before we dive into the benefits of F & O trading in Sensex and Bankex, let us understand what these indexes comprise and indicate.

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The BSE Sensex is the primary index of the Bombay Stock Exchange (BSE) and consists of 30 of the largest and most heavily traded stocks on the exchange. It holds the position of India's premier benchmark stock market index, is closely monitored by investors and analysts, and is similar to NSE’s Nifty50.

The BSE Bankex index comprises ten companies involved in banking and financial services listed on the Bombay Stock Exchange (BSE). This index is weighted using a modified market cap weighted method. Top 5 constituents include ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank, and State Bank of India.

Benefits of F&O trading in BSE

Here are the top benefits of trading in futures and options on BSE indexes:

Friday expiry 

Introducing these new contracts includes weekly and monthly expiries (with 7 weekly and 3 monthly options). This aspect is lovely to options sellers, as it offers a higher theta decay on the weekly contracts. What adds to the appeal is that the expiry days for these contracts fall on Fridays, avoiding any overlap with the weekly expiries of Nifty 50 Bank Nifty (which expires on Thursdays) and Fin Nifty (which expires on Tuesdays). As a result, traders are now expecting volatility in Bank Nifty.

Lower transaction charges

Cost-effectiveness is always a significant consideration for traders. BSE Sensex and Bankex F&O contracts come with a distinct advantage - the transaction charges for trading in futures are nil, and options offer a 90% savings in transaction charges. 

Lower transaction costs can significantly enhance the overall profitability of your trading strategy, making these contracts an attractive choice for cost-conscious traders.

Stability of an Index

The stability of an index is a crucial factor for traders looking to manage risk and reduce exposure to market volatility. The SENSEX, being a broader market index, offers just that. 

Unlike individual stocks that can experience substantial price swings, the SENSEX tends to exhibit more stability over time. This stability makes it an ideal instrument for traders seeking to dabble in the markets with a more predictable and measured approach.

Hedging & pair trading

One of the standout advantages of BSE Sensex and Bankex F&O contracts is their high correlation with the existing broader market indices on the NSE. This correlation opens up opportunities for hedging and pair trading strategies.

Traders can use these contracts to hedge their positions in the Nifty 50 or other indices. For example, if you have a loss-making position in Nifty 50, you can take a counter position in Sensex futures or options to mitigate potential losses. This hedging strategy helps safeguard your portfolio against adverse market movements.

The high correlation between BSE Sensex and NSE indices allows for pair trading between these indices. Pair trading involves taking simultaneous long and short positions in two correlated assets to profit from the relative performance between them. Traders can use this strategy to capitalise on price differentials and market trends.

Innovation

BSE's strong presence in the derivatives market encourages healthy rivalry among other exchanges, sparking innovation and the improvement of services. This competitive environment compels exchanges to launch fresh products, upgrade their trading platforms, and deliver superior customer support, ultimately yielding advantages for investors.

In conclusion, trading in BSE Sensex and Bankex futures and options contracts offers a host of benefits that can elevate your trading experience. With Friday expiry, lower transaction charges, stability, expanded trading opportunities, and the potential for hedging and pair trading, these contracts provide traders with a dynamic and cost-effective platform to pursue their financial goals

As more stockbrokers offer access to these contracts, seize the opportunity to enhance your trading strategies and easily navigate the ever-evolving world of finance.

 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 

 

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