F&O watch: Nifty to generate profits if closes in 16,150-16,350 range; Bank Nifty remains positive

August 05, 2021 7:56 AM

Options data suggest an immediate trading range for Nifty 50 index between 16,400 and 16,100 levels.

Nifty, bank nifty, stock markets outlookThe chart pattern suggests that if Bank Nifty crosses and sustains above 36000 level it would witness buying which would lead the index towards 36500-36800 levels.

By Rajesh Palviya

In Nifty current series, a Long addition has been witnessed with an increase in price of 2.88% and increase in OI by 32.90% as on Wednesday wherein there was addition of 29.02 lakh shares in OI, increasing from 88.24 lakh to 117.27 lakh shares. Nifty August rollover stands at 9.70%; while Nifty Put Call Ratio, a sentiment indicator used by traders to gauge the market sentiment and mood, is currently at 1.53 compared to 1.16 of last week, indicating positive bias with caution at higher levels.

India VIX, a market volatility indicator often called the fear gauge, is currently trading 13.21% compared to 12.94% of last week. Implied Volatility of Nifty ATM options for the current series is at 13.44% in contrast to 12.09% of last week, indicating marginal volatile movement on either side in coming session.

Nifty Put options OI distribution shows that 16,000 has highest OI concentration followed by 15,900 and 16,200 which may act as support for current expiry and on the Call front 16,300 followed by 16,400 & 16,500 witnessed significant OI concentration and may act as resistance for current expiry.

In weekly options there was Call writing seen at 16,400 strike followed by 16,300 and 16,350 while on the Put side noticeable activity of writing was witnessed in 16,000 and 16,200 strike prices. Options data suggest an immediate trading range between 16,400 and 16,100 levels.

Nifty Open Interest Concentration 

Nifty Open Interest Change 

Bank Nifty Outlook 

In current series, a Short Covering has been witnessed in Bank Nifty Futures with an increase in price of 3.62% and decrease in OI by -11.05% as on Wednesday wherein there was unwinding of 2.17 lakh shares in OI, decreasing from 19.61 lakh to 17.44 lakh shares. Bank Nifty August rollover stands at 6%; while Bank Nifty Put Call Ratio, a sentiment indicator used by traders to gauge the market sentiment and mood, is currently at 1.23 compared to 0.79 of last week indicating positive bias with caution.

Bank Nifty Put options OI distribution shows that 35,000 has highest OI concentration followed by 35,500 which may act as support for current expiry and on the Call front 37,000 followed by 36,000 and 36,200 witnessed significant OI concentration and may act as resistance.

In weekly options Call writing was seen at 36,000, 36,200 and 37,000 strike while on the put side it was seen at 35,500 and 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 50 trading strategy for expiry day

The high open interest concentration in Nifty on 5th August 2021 expiry is at 16300 Call and 16200 Put is indicating range bound 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 16,250 strike having premium of 46 and 44 respectively garnering in total inflow of Rs. 4,500 (90 points). As it’s a credit spread from profit perspective this strategy will generate maximum profit of Rs 4,500 restricted to total premium received if Nifty closes exactly at the sold strike i.e 16,250 on expiry; however, incase if Nifty breaches the upper breakeven level of 16,340 or the lower breakeven level of 16,160 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 130-140 points so that if due to any reason if there wide movement in Nifty the exposure of unlimited loss can be curtailed.

The strategy will generate profits if Nifty remains in the range of 16,150 to 16,350 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 day 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.)

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