Bank

F&O expiration: use Put Ladder in Nifty to make profit; Support Bank Nifty at 34000; here is the trading day strategy

By Rajesh Palvia

On the daily chart, the NSE Nifty 50 Index formed a large bearish candle and closed below the previous session’s low, indicating a negative bias. The index is moving in a Lower Top and Lower Bottom formation on the daily chart indicating a negative bias. The chart pattern suggests that if Nifty 50 breaks and holds above the 16800 level, it would witness some buying which would drive the index towards the 16900-17000 levels. However, if the index breaks below the 16600 level, it would trigger a selloff that would take the index towards 16500-16300. Nifty is trading below its 20-, 50-, 100- and 200-day SMA, which indicates a negative bias in the short to medium term. Nifty continues to remain in a short to medium term downtrend, so selling on rallies continues to be our preferred strategy.

The RSI daily strength indicator is moving lower and is below its reference line indicating a negative bias.

Nifty 50 Derivative Insights

In the current series of Nifty, there was a short accumulation with a decline in price of -0.10% and a 26% increase in OI from Wednesday, where there was an addition of 22, 40 lakh shares in OI, rising from 85.15 lakh shares to 107.56 lakh shares. The current month’s shrewd turnover stands at 17.13% on Wednesday. Nifty Put Call Ratio, a sentiment indicator used by traders to gauge market sentiment and mood, is currently at 0.65 from 1.36 last week, which is somewhat oversold at lower levels and could rise for a slight rebound.

India VIX, a market volatility indicator often referred to as the fear gauge, is currently trading at 21.88% from 19.38% last week. The implied volatility for Nifty ATM options for the current series is 23.03%, up from 18.48% last week, indicating volatile movement on both sides in the expiry session.

The OI distribution of the Nifty Put options shows that 16,500 has the highest concentration of OI, followed by 16,600 and 16,400 which can act as support for the current expiration and on the call front, 17,000 followed by 16900 and 16800 witnessed a significant OI concentration and may act as resistance for the current exhalation. In weekly options, there were call writes seen at 16,900 strike prices followed by 16,800 and 17,000 while on the put side, notable write activity was seen in the strike prices of 16,500, 16,600 and 16,700. Options data suggests an immediate trading range between 17,800 and 17,300 levels.

Nifty Open Interest Concentration

Clever option OI change

Astute insights from the bank

On the daily chart, the Nifty Bank Index formed a large bearish candle and breached multi-day support at 35500 indicating a negative bias. The index is moving in a Lower Top and Lower Bottom formation on the daily chart indicating a negative bias. The chart pattern suggests that if Bank Nifty breaks through and holds above the 35,500 level, it would witness some buying which would drive the index towards the 35,800-36,000 levels. However, if the index breaks below the level of 35200, this would trigger a selloff that would take the index towards 35000-34600. Bank Nifty is trading below the 20, 50, 100 and 200 day SMA indicating a short to medium term negative bias. Bank Nifty continues to remain in a short to medium term downtrend, so selling on rallies continues to be our preferred strategy.

The daily and weekly RSI strength indicator is moving down and is below its reference line indicating a negative bias.

Nifty Bank Derivatives Outlook

In the current series, there was a short addition seen in Bank Nifty Fut with a price decline of -3.17% and an increase in OI of 16.20% from Wednesday, where there was an addition of 4.08 lakh shares in OI, rising from 25.20 lakh to 29.28 lakh shares. The Bank Nifty Current series rollover stands at 7.53% like today, while the Bank Nifty Put Call Ratio, a sentiment indicator used by traders to gauge market sentiment and mood, is currently at 0.53 from 0.92 last week, indicating a likely rebound.

The OI distribution of Bank Nifty Put options shows that 35,000 has the highest concentration of OI, followed by 34,000 and 34,500 which can serve as support for the current expiration and on the call front, 36,000 followed by 36,200 and 36,500 witnessed significant OI concentration and may act as resistance.

In weekly options, call option selling was seen at 36,000, 36,500 and 36,200, while on the put side, it was seen at 35,000, 35,200 and 34,500. Options data pointed to an immediate trading range between the 37,000 and 38,000 levels.

Bank Nifty Open Concentration of interests

Bank Nifty OI exchange

NSE Nifty 50 Trading Strategy for Weekly F&O Expiry Day

The strategy we suggest for the weekly expiry scheduled for May 12 is a bearish strategy namely PUT LADDER, which consists of buying one lot of Nifty 16,700 PUT @ 238 and selling one lot each of 16,450 PUT @ 144 and a lot of 16,200 PUT @ 79. Put Ladder is a strategy of limited profit and unlimited risk; which is an extension of the sell spread and to further reduce the cost of the strategy (net premium), another additional leg of OTM PUT is sold and therefore any move below the sold leg may result in a unlimited loss.

The maximum profit of Rs 11,750 will be reached at 16,450 levels, while the strategy will start making a loss below 16,000. The cost of the strategy involves an exit of Rs 750 which is the maximum loss if Nifty closes and remains above the 16,685 levels at expiry, however any deeper move to the lower side could result in losses and as an additional put has been sold, it is advisable to exit the strategy altogether to avoid unlimited losses below 15,950. The equilibrium points for the strategy are 16,685 on the upside and 15,735 on the downside.

(Rajesh Palviya, Vice President – Research (Head of Technical and Derivatives), Axis Securities. Opinions expressed are those of the author.)