Budget Day Trade for Beginners

Trading on budget day is something that excites almost every investor, even those who don’t usually trade throughout the year. The event-driven volatility that budget day brings makes it an interesting opportunity for many. But is it really as easy as it shows? In this article, we’ll discuss which trading strategies are often promoted for budget day, whether they truly work based on historical data, and how you can choose the right opportunities without falling into common problems.

Why Trade on Budget Day?

The simple answer is unpredictably. In trading, the real money is made when there’s momentum whether it’s upward or downward. Budget day is talked for sharp market movements, making it a goldmine for traders looking to make quick profits. However, with high rewards come high risks, especially for beginners who might get swept up in the excitement.

Budget Day Trade Strategy

One of the most widely promoted strategies for budget day is buying both a “call” and a “put” option at the money, known as a “straddle.” The logic behind this is simple if the market moves significantly in either direction, you stand to profit. But does this strategy really deliver?

Testing the Popular Strategy (Straddle)

Budget Day 2022 – Case Study

2022 was one of the few years where the market showed significant momentum. Initially, you’d see some profits, but by mid-day, losses would start moving up again. By the end of the day, the straddle would have left you with a substantial loss, around ₹75,000.

Budget Day 2023 – Case Study

In 2023, applying the same strategy, you would have entered the market at 9:16 AM. By 9:46 AM, you’d be down by ₹10,000, and the losses would continue to accumulate, reaching ₹53,000 by mid-day. Interestingly, there was a small window in the afternoon where the position was slightly profitable, but by the end of the day, you’d still be facing a loss of around ₹36,000. So, while there was a brief opportunity to exit with a profit, the overall outcome remained negative.

Budget Day 2024 – Case Study

Imagine on February 1, 2024, you bought 10 lots of call options and 10 lots of put options at the money. At the market’s opening, you set your positions. Within the first 30 minutes, you would have seen a loss of ₹32,000. Waiting another 30 minutes would have increased your loss to ₹40,000. By the end of the trading day, if you held onto your positions, your loss could exceed ₹1,00,000. Clearly, the straddle strategy didn’t work out well in 2024.

From Past Data

Looking at data from the past few years, this strategy has only been successful in about 25% of cases. In most instances, traders end up with losses. This highlights the importance of not blindly following popular strategies without understanding their risks.

India’s 2025 Budget Predictions

As we approach Budget 2025, several sectors are under the spotlight, and traders are wait to see how the announcements will impact the markets.

1) Insurance Sector

There have been consistent calls from industry leaders for GST rebates on insurance premiums. If the government announces tax relief in this sector, it could positively impact insurance stocks.

2) Stock Market & Investments

There might be changes in Securities Transaction Tax (STT) and Long-Term Capital Gains (LTCG) tax rules. Any tax relief could boost market sentiment, potentially leading to a rally.

3) Cryptocurrency Regulations

Crypto has faced strict taxation in India, but there’s hope for some relief in this budget. A positive announcement could lead to a surge in the crypto markets.

4) Gold

With gold prices already at an all-time high, there’s speculation that the government might increase import duties. This could impact gold prices and related stocks.

5) Infrastructure

The government has consistently prioritized infrastructure spending. We expect continued support for infrastructure projects, which will benefit sectors like railways, highways, and renewable energy.

6) Middle-Class Tax Relief

With elections approaching, there is a strong possibility of income tax slab adjustments to provide relief to middle-class taxpayers.

While budget day presents exciting trading opportunities due to market volatility, it’s important to approach it with a well thought out strategy. Historical data shows that popular strategies like straddles don’t always work, and traders should be prepared for both profits and losses. For those looking for alternative opportunities, cryptocurrencies might offer the volatility needed for quick gains, but they come with their own set of risks and tax implications.

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