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Nifty below 16000 may fall to 15600, Bank Nifty to trade in red; use Iron Butterfly for this weekly F&O expiry

Nifty Put options OI distribution shows that 16000 has highest OI concentration followed by 16500 & 16300 which may act as support for current expiry

Nifty 50, Bank Nifty, derivative market
The chart pattern suggests that if Nifty 50 index breaks below 16000 level it would witness selling which would take the index towards 15800-15600

By Rajesh Palviya

NSE Nifty 50 index witnessed selling pressure throughout the week, dragging the index to close at its lowest point. Nifty closed at 16202 with a loss of 151 points on a weekly basis. On the weekly chart the index has formed a long bearish candle forming lower High-Low compared to previous week indicating weakness at current levels.

The chart pattern suggests that if Nifty 50 index breaks below 16000 level it would witness selling which would take the index towards 15800-15600. However if Nifty crosses and sustains above 16400 levels it would witness buying which would lead the index towards 16500-16800 levels .For the week, we expect Nifty to trade in the range of 16400-15700 with a negative bias. The weekly strength indicator RSI is moving downwards and is quoting below its reference line indicating negative bias .

Nifty 50 Derivative Outlook 

Nifty futures closed at 16219 on a negative note with 2.22% decrease in the open interest indicating Long Unwinding. Nifty Futures closed at a premium of 18 points compared to the previous day premium of 3 points. FIIs were Sellers in Index Futures to the tune of 1729 crore and were Buyers in Index Options to the tune of 6118 crore, Sellers in the Stock Futures to the tune of 3461 crore. Net Buyers in the derivative segment to the tune of 893 crore. India VIX index is at 19.58 v/s 19.14. Nifty ATM call option IV is currently 13.80 whereas Nifty ATM Put option IV is quoting at 20.38.

Nifty Put options OI distribution shows that 16000 has highest OI concentration followed by 16500 & 16300 which may act as support for current expiry. Nifty Call strike 16500 followed by 16000 witnessed significant OI concentration and may act as resistance for current expiry.

Nifty Bank Outlook

Bank Nifty started the week on a flat note however selling pressure throughout the week led the index to end on a weak note. Bank Nifty closed at 34484 with a loss of 1130 points on a weekly basis. On the weekly chart the index has formed a sizable bearish candle and closed below previous week’s low indicating weakness on a short term basis. 

The  chart pattern suggests that if the index breaks below 34200 level it would witness selling which would take the index towards 33800-33200. However if Bank Nifty crosses and sustains above 35000 level it would witness buying which would lead the index towards 35500-36000 levels. For  the week, we expect Bank Nifty to trade in the range of 35000-33200 with a negative bias. The  daily and weekly strength indicator RSI is in negative terrain and below its respective reference lines indicating negative bias.

Nifty Bank Derivative Outlook

Bank Nifty closed at 34555 on a negative note with 13.11% increase in open interest indicating Short Build Up. Bank Nifty Futures closed at a premium of 71 points compared to the previous day premium of 46 points. Bank Nifty Put options OI distribution shows that 35000 has highest OI concentration followed by 34500 which may act as support for current expiry. Bank Nifty Call strike 34500 followed by 35000 witnessed significant OI concentration and may act as resistance for current expiry.

Sectors and stocks for this week 

We expect Automobile, Defense, FMCG, Oil & Gas may attract some buying interest while Metal, IT, Banking & NBFC may remain under selling pressure. Stocks of TVS Motor Company , Bajaj Auto, Dabur India, ITC, HAL (Hindustan Aeronautics), BEL (Bharat Electronics), ONGC, Coal India, may show some buying interest.

NSE Nifty 50 trading strategy for this week

The strategy which we are suggesting for the week with expiry schedule on 16th May 2022 is IRON BUTTERFLY, which involves Selling of one lot of Nifty 16,200Call @ 163 & Selling of one lot of Nifty 16,200 Put @ 145 and simultaneously buying one lot of 16,550 Call @ 39 & buying one lot of 15,850 put @ 40. Both risk and reward in this strategy are limited and the gains in the strategy will be accrued between two levels i.e 16,450 on upside & 16,000 on downside. The Nifty is likely to find a strong support at 16000 as 16000 put has high OI concentration while upside is likely to be restricted to 16300 or 16500 and eventually conclude weekly expiry in the range of 16,000 to 16,500. Maximum profit of Rs 11,450 will happen if the Nifty closes or expires at 16,200. On the other hand if Nifty expiry close is above 16,429 (upper bep) or below 15,971 (lower bep) then maximum loss incurred will be Rs 6,050.

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

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