F&O expiry: Nifty to trade flat-to-negative, use Long Strangle strategy for gains; Bank Nifty support at 34000

Options data suggest an immediate trading range for NSE Nifty 50 between 16,500 and 16,000 levels.

NSE Nifty 50, Bank Nifty, F&O expiry
Markets during May expiry are likely to make a wide move in either of the directions with increased Implied volatility which means increased option value

By Rajesh Palviya

In Nifty current series there has been a Long Unwinding witnessed with decrease in price of -2.95% and decrease in OI by -2%  as on today wherein there was shedding of 1.51 lakh shares in OI, decreasing from 85.15 lakh to 83.64 lakh shares. Nifty current month rollover stands at 30.45% as of Wednesday, with Nifty Put Call Ratio, a sentiment indicator used by traders to gauge the market sentiment and mood, is currently at 0.87 compared to 0.75 of last week, indicating a flat-to-negative movement for expiry.

India Vix, a market volatility indicator often called the fear gauge, is currently trading 22.30% compared to 24.26% of last week. Implied Volatility of Nifty ATM options for the current series is at 21.23% in contrast to 23.68% of last week, indicating lower volatile movement on either side in the expiry session. Nifty Put options OI distribution shows that 16,000 has highest OI concentration followed by 16,100 & 15,900 which may act as support for current expiry and on the Call front 16,500 followed 16,400 & 16,300 witnessed significant OI concentration and may act as resistance for current expiry.

In WEEKLY options there was Call writing seen at 16,500 strike followed by 16,400 & 16,300 while on the Put side noticeable activity of writing was witnessed in 16,000 ,16,200 & 16,100 strike prices. Options data suggest an immediate trading range between 16,500 and 16,000 levels.

Nifty Open Interest Concentration

Nifty Option OI Change

Nifty Bank Outlook 

In current series there has been a Long Unwinding witnessed in Bank Nifty Fut with an decrease in price of -6.37% and decrease in OI by -3.05% as on Wednesday wherein there was shedding of 0.77 lakh shares in OI, decreasing from 25.20 lakh to 24.43 lakh shares. Bank Nifty Current series rollover stands at 15.41% as of Wednesday, while Bank Nifty Put Call Ratio is currently at 0.83 compared to 0.67 of last week indicating flat-to-negative movement for expiry.

Bank Nifty Put options OI distribution shows that 33,000 has highest OI concentration followed by 34,000 & 33,500 which may act as support for current expiry and on the Call front 34,500 followed by 35,000 & 35,500 witnessed significant OI concentration and may act as resistance.

In WEEKLY options Call writing seen at 34,500, 34,600 & 35,000 strike while on the put side it was seen at 34,000 , 34,200 & 33,500 Options data indicated an immediate trading range between 35,000 and 33,500 levels.

Bank Nifty Open Interest Concentration

Bank Nifty Option OI Change

Nifty 50 index trading strategy for monthly F&O expiry

Markets during May expiry are likely to make a wide move in either of the directions with increased Implied volatility which means increased option value, and to take advantage of the same we are suggesting a market-neutral strategy called Long Strangle for monthly expiry at 26th May 2022.This strategy involves buying of (OTM) 16250 CALL & 16200 PUT one lot each having premium of 180 & 181 respectively making a total premium outflow of Rs 18,050 (361 points). As it’s a debit spread, from profit perspective this strategy can generate theoretically unlimited profit while the loss is restricted to total premium paid if Nifty closes near the long options on expiry; however once Nifty breaches the upper breakeven level of 16,611 or the lower breakeven level of 15,839 and sustains on either side then the profit can be unlimited. It’s advisable to maintain a combine premium (i.e add premium of call + put together) stop loss of 150-160 points  so that if Nifty doesn’t make a strong move then losses can be curtailed by following the above mentioned stop loss or else Traders as per there risk appetite can even hold till expiry.

(Rajesh Palviya, VP – Research (Head Technical and Derivative) at Axis Securities. Views expressed are the author’s own.)

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