The increased volatility in the market over the last one year has pushed many individuals to engage in short-term trades. One such trade is ‘Buy Today, Sell Tomorrow’ (BTST).

This week, we discuss whether you should consider options or futures for BTST trades.

Theta Effect

BTST trade typically involves buying during the last 30 minutes of trading with the intent to close the position during the early trade the next day. Now, consider trading options. An option price consists of two components — intrinsic value and time value. Intrinsic value moves one-to-one with the underlying. But only in-the-money (ITM) options have intrinsic value. All options carry time value, which decreases with each passing day. The loss in time value is referred to as theta or time decay. This is the reason why option prices cannot move one-to-one with the underlying. 

Futures do not suffer time decay. Therefore, theta becomes the primary factor deciding between futures and options for BTST trade. Note that theta impacts an option price on daily basis, not intraday. That means if you hold an option position overnight, the price of the option will be lower the next day, if the underlying price, interest rate and volatility remain the same. These factors are held constant in an option valuation model to show the effect of the loss in time value per day.

The above discussion shows that even if the underlying were to move up as expected, an option cannot offer maximum profit potential because of theta. This sets up a clear bias towards futures. A long BTST trade is initiated only if you expect the underlying to move up sharply the next day. The directional bias and the confident view of the price movement lends itself to a futures trade. This is because futures price can move nearly one-to-one with the underlying. 

Of course, there is high downside risk. Overnight trades are exposed to high level of systematic risk. This is the risk that the market can tank because of negative news that flows in before the exchange opens for trading the next day. It is, therefore, important that you initiate a BTST trade with stop-loss trigger to moderate the downside risk. This is also another reason why futures are beneficial compared to options. It is not so easy to arrive at an appropriate stop on options; you must use an option valuation model to forecast the option price if the underlying were to move adversely at opening trade the next day.

Optional reading

BTST trades require astute reading of the chart. The objective is to identify a list of underlyings that have momentum with strong likelihood that the price will move up in early trade the next day. Among other factors, volume and market profile will play an important role in identifying BTST trades. Note that you must identify momentum on a lower time-frame, say, 5-to 15-minute charts preferably on the futures prices. 

The author offers training programmes for individuals to manage their personal investments

Published on May 9, 2026