The derivative segment is the biggest contributor to daily turnover in the Indian stock market. Within derivatives, options trading has captured the imagination of millions of Indian retail investors. Options trading allows one to make a forecast regarding fluctuations in the value of the underlying instrument such as stocks without actually owning stocks. High potential returns and low margin requirement have made options trading immensely popular in India despite being highly risky. Traders often employ this strategy to make money from fluctuations in the price of a specific stock or index.
Some very liquid stocks that attract high turnover and are good as option stocks include Reliance Industries Limited, Infosys, Voltas, and Apollo Tyres Ltd. Since these best stocks for options trading are likely to be volatile, traders often prefer these stocks. However, it is important to understand options trading in perspective before you dip your toes into this lucrative, yet risky corner of the market. Let’s dig in.
Best stocks for options trading with high liquidity: An overview
Liquidity is one criterion for selecting options and the other is price volatility. Mid-cap stocks tend to be more volatile, and options based those counters also tend to be more volatile. Under Equity Derivatives, NSE website lists 5 indexes—Nifty 50, Nifty Bank, Nifty Financial Services, Nifty MIDCAP SELECT, and Nifty NEXT 50 and 180 individual stocks that are a combination of mid-caps and large caps. Given below are a list of mid-caps and large-caps that find mention on the NSE website, which could be considered as best stocks for options trading.
| Serial No | Name | Market Cap | PE Ratio | Div Yld % |
| 1. | Reliance Industries Limited | ₹20,14,254 Cr. | 29.3 | 0.34% |
| 2. | Infosys | ₹ 7,88,720 Cr. | 29.6 | 2% |
| 3. | SBI | ₹ 7,12,452 Cr. | 9.77 | 1.72% |
| 4. | Adani Enterprises | ₹3,52,699 Cr. | 84.9 | 0.04% |
| 5. | Ashok Leyland | ₹70,797 Cr. | 28.4 | 2.05% |
| 6. | Voltas | ₹61,459 Cr. | 136 | 0.30% |
| 7. | MPhasis | ₹57,828 Cr. | 37.0 | 1.80% |
| 8. | Apollo Tyres | ₹35,865 Cr. | 21.1 | 1.06% |
All data from Screener.in as of Septemer 26, 2024
Reliance Industries Limited
Diversified conglomerate Reliance Industries is present in oil and gas, retail, media and entertainment, and telecommunications sectors, serving over 250 million consumers, fulfilling the dream of Dhirubhai Ambani, founder of Reliance. The Mumbai-headquartered Reliance Industries Ltd. had a net worth of above Rs. 7.4 trillion in financial year 2024.
Infosys
Infosys Ltd, based in Bengaluru, is one of the leading information technology outsourcing companies in India. It was established in 1981.
State Bank of India
The State Bank of India, a PSU bank, was incorporated on July 1, 1955. Headquartered in Mumbai, SBI provides a wide range of financial products and services to individuals, commercial enterprises, large corporate public bodies, and institutional customers through its various branches and outlets.
Adani Enterprises
Adani Enterprises Ltd, the flagship company of the Adani Group, is one of the fastest growing diversified businesses, providing an extensive range of products and services. The company is engaged in mining and services, resource logistics, new energy supply chain including solar module and cell manufacturing, transport and logistics business like airports and roads, utilities like water and data centers, edible oil and food businesses.
Ashok Leyland
Ashok Leyland Ltd. is engaged in manufacturing and selling commercial vehicles. The firm manufactures engines for industrial and marine applications, forgings, and casting. Its products include buses, trucks, engines, defense, and special vehicles.
Voltas Ltd
Voltas Ltd., a Tata group firm, was incorporated on September 6, 1954. The company is jointly promoted by Switzerland’s Volkart Brothers and India’s Tata Sons Pvt. Ltd. The firm has established itself as a leader in cooling products and is the No. 1 room air conditioner brand in India.
MPhasis Ltd
MPhasis Ltd was incorporated on August 10, 1992. The firm is a global information technology (IT) solutions provider that specializes in providing cloud and cognitive services and applies next-generation technology to help enterprises transform businesses globally. The company was formed after the merger of US-based IT consulting company MPhasis Corporation and Indian IT services company BFL Software Ltd.
Apollo Tyres Ltd
Apollo Tyres Ltd is one of the leading tire manufacturing companies in India. The company manufactures and sells automobile tires and tubes. The company was incorporated on Sept. 28, 1972.
Factors to consider while evaluating stocks for options trading
We have discussed the best stocks for options trading. However, traders would do well to keep some factors in mind while doing options trading, considering the risks involved.
Time is money
Duration is one of the most crucial things to take into account when selecting a stock for option trading. The options market is wide-ranging and intricate. Time plays a big role in the pricing of options as the value of your options lose value with time. Essentially, you need to cover the position on time, be it in profit or loss.
Liquidity is key
While selecting a stock for options trading, it is crucial to avoid illiquid stocks. Typically, liquid stocks are those with high trade volumes, where you can enter or exit a trade easily.
Volatility
One of the key things to take into account when discussing options trading is the extent of price variations in a stock over a certain period. Volatility is crucial to this trading since it has a direct impact on stock and option pricing. There is a lot of opportunity to generate significant investment returns when there is volatility. For traders, volatility is a desirable alternative primarily because it indicates that the market retains market risks by reflecting implied volatility and historical price fluctuations.
Understand the terms used in F&O trading
Lot size, premium, exercise date, and strike price are some of the everyday terms used in options trading. Familiarizing yourself with these terms will improve your understanding of options trading and make you a better trader.
Technical analysis
Technical analysis is a crucial component of trading that comes after fundamental analysis and helps options traders make better investment selections. Technical analysis is a technique that traders primarily use to forecast future price changes somewhat by using historical data from the market. Making wise investing decisions may be achieved by focusing on price forecasts and market trends.
Is options trading risky?
Due to its intricacy and leverage, options trading can be quite risky. There is always a risk with trading in the best stocks for options trading because of its complexity and the high amount of leverage involved. Options trading, unlike standard share trading, is contracting on a particular asset’s potential price direction in a specific period. If projections go wrong, you can post significant losses. F&O trading attracts traders due to high returns, but the same leverage can also work as a negative factor that can lead to a higher loss than the initial investment. Additionally, options can turn worthless at expiration and thus give investors nothing. Options are traded at high velocity, come with fluctuating costs, and focus on timing.
What is the minimum investment for options trading in India?
In India, there is no set minimum investment required to trade options. Generally speaking, the type of contract and the premium would decide the investment required. In fact, contracts are available in lot sizes that vary from stock to stock. Essentially, you if you want to trade options. should pay a premium for at least one lot. In other words, the premium you pay will be your minimum investment, not to mention brokerage and other charges. On the other hand, you are mandated to maintain margin money in your trading account to sell an option contract. It would be prudent to verify with your broker since they may have their own minimum margin requirements.
Do I need to pay taxes on profits from options trading?
Yes, taxes are applicable on options trading gains. All transactions in Futures and Options (F&O) are treated as business activity and profit and loss will be treated as business income and taxed accordingly. While filing tax returns, you can classify short-term or long-term gains under the head capital gains. At the same time, you can show profit and loss under F&O as business income. As an options trader, you should ensure compliance with local tax rules and maintain accurate documentation and seek advice from a tax expert as required.
