F&O weekly expiry: Nifty to trade in 16400-16800 range, Bank Nifty may remain cautious; check trading strategy

By Rajesh Palviya

In the Nifty current series, there has been a Short Covering witnessed with an increase in the price of 5.23% and decrease in OI by 47% as of today wherein there was the unwinding of 41.26 lakh shares in OI, decreasing from 88.24 lakh to 46.98 lakh shares, while OI in September series is 95.35 lakh shares with the addition of 36.88 lakh shares on Wednesday. The major unwinding in the current series is due to the monthly expiry scheduled for Thursday. Nifty August rollover stands at 68.16% as of Wednesday.

Nifty Put Call Ratio, a sentiment indicator used by traders to gauge the market sentiment and mood, is currently at 1.27 compared to 1.49 of last week, India VIX, a market volatility indicator often called fear gauge, is currently trading at 13.50 per cent compared to 12.90 per cent last week. Implied Volatility of Nifty ATM options for the current series is at 12.49% in contrast to 12.40% last week, indicating marginal volatile movement on either side in the coming session.

Nifty Put options OI distribution shows that 16,500 has highest OI concentration followed by 16,600 & 16,400 which may act as support for current expiry and on the Call front 16,700 followed by 16,800 & 16,900 witnessed significant OI concentration and may act as resistance for current expiry. In weekly options there was Call writing seen at 16,800 strike followed by 16,700 & 16,750 while on the Put side noticeable activity of writing was witnessed in 16,600 & 16,500 strike prices. Options data suggest an immediate trading range between 16,800 and 16,400 levels.

Nifty Open Interest Concentration

Nifty Option OI change 

Bank Nifty Outlook

In the current series, there has been a Short Covering witnessed in Bank Nifty Fut with an increase in the price of 2.25% and decrease in OI by -59.75% as of today wherein there was the unwinding of 11.72 lakh shares in OI, decreasing from 19.61 lakh to 7.89 lakh shares, while in September series OI was 11.86 lakh shares with addition of 3.59 lakh shares on Wednesday. Bank Nifty August rollover stands at 61.08% as on Wednesday. Bank Nifty Put Call Ratio, a sentiment indicator used by traders to gauge the market sentiment and mood, is currently at 0.95 compared to 0.74 of last week indicating positive bias with caution.

Bank Nifty Put options OI distribution shows that 36,000 has highest OI concentration followed by 36,500 which may act as support for current expiry and on the Call front 35,000 followed by 35,500 & 34,500 witnessed significant OI concentration and may act as resistance. In weekly options Call writing seen at 35,800, 35,900 & 36,000 strike while on the put side it was seen at 35,500 & 35,000.Options data indicated an immediate trading range between 35,000 and 36,500 levels.

Bank Nifty Open Interest Concentration 

Bank Nifty Option OI Change

Nifty trading strategy for F&O expiry day

The high open interest concentration in Nifty on 26th August expiry is at 16,700 Call & 16,500 Put along with decreasing IVs is indicating narrow movement on Thursday and to take advantage of the same we are suggesting a strategy called SHORT STRADDLE. This strategy involves selling of (ATM) CALL & PUT one lot each of 16,650 strike having premium of 32 & 52 respectively garnering in total inflow of Rs 4,200 (84 points).As it’s a credit spread from profit perspective this strategy will generate maximum profit of Rs 4,200 restricted to total premium received if Nifty closes exactly at the sold strike i.e 16,650 on expiry; however, in case if Nifty breaches the upper breakeven level of 16,734 or the lower breakeven level of 16,566 and sustains on either side then the loss can be virtually unlimited and hence it’s advisable to maintain a combine premium (i.e add premium of call + put together) stop loss of 140-150 points so that if due to any reason if there is any sustain wide movement in Nifty the exposure of unlimited loss can be curtailed.

The strategy will generate profits if Nifty remains in the range of 16,730 to 16,570 till the expiry and also closes between the same, as the THETA or TIME DECAY of options will work doubly in our favour eventually making it a best-case scenario as we reach closer to expiry on each passing hour.

(Rajesh Palviya is Vice President– Research (Head Technical & Derivatives) at Axis Securities Limited. The views expressed are the author’s own. Please consult your financial advisor before investing.)