Nifty may hit 17000, if it slips below 17500, use Iron Butterfly strategy; Bank Nifty to hit 38600 this week

The daily and weekly strength indicator RSI is in bearish mode which supports bearish sentiments ahead in Nifty 50 index.

Nifty, bank nifty
Bank Nifty Put options OI distribution shows that 36000 has highest OI concentration followed by 36500

By Rajesh Palviya

NSE Nifty 50 index closed at 17,617 with a loss of 639 points on a weekly basis last week. On the weekly chart, the index has formed a long bearish candle erasing previous week’s gain and has also closed below previous week’s low indicating weakness at current levels. The chart pattern suggests that if Nifty crosses and sustains above 17800 level it would witness buying which would lead the index towards 18000-18300 levels. However, if index breaks below 17500 level it would witness selling which would take the index towards 17200-17000. For the week, we expect Nifty to trade in the range of 18500-17800 with a positive bias. For the week, we expect Nifty to trade in the range of 18000-17400 with mixed bias. The daily and weekly strength indicator RSI is in bearish mode which supports bearish sentiments ahead.

Nifty 50 Derivative Outlook

Nifty futures closed at 17618 on a negative note with 3% decrease in the open interest indicating Long Unwinding. FIIs were sellers in index futures to the tune of 616 crore and were buyers in Index Options to the tune of 416 crore, sellers in the Stock Futures to the tune of 1003 crore, and net sellers in the derivative segment to the tune of 1518 crores. India VIX index was at 18.89 versus 17.79. Nifty ATM call option IV stood at 16.09 whereas Nifty ATM Put option IV was quoting at 15.65.

Index options PCR was at 0.87 versus 0.76, and F&O Total PCR was at 0.92. Nifty Put options OI distribution shows that 17500 has highest OI concentration followed by 17600 and 17400 which may act as support for current expiry.  Nifty Call strike 18000 followed by 17900 witnessed significant OI concentration and may act as resistance for current expiry. 

Bank Nifty Outlook 

Bank Nifty closed at 37574 with a loss of 796 points on a weekly basis on Friday. On the weekly chart, the index has formed a small bearish candle with shadows on either side indicating indecisiveness amongst participants regarding the direction. The chart pattern suggests that if Bank Nifty crosses and sustains above 37900 level it would witness buying which would lead the index towards 38300-38600 levels. However if index breaks below 37200 level it would witness selling which would take the index towards 37000-36400.  For the week, we expect Bank Nifty to trade in the range of 38600-37200 with mixed bias. The weekly strength indicator RSI is moving upwards and is quoting above its reference line indicating positive bias. 

Bank Nifty Derivative Outlook 

Bank Nifty closed at 37598 on a negative note with 6.93% decrease in open interest indicating Long Unwinding. Bank Nifty Put options OI distribution shows that 37500 has highest OI concentration followed by 37300 and 37200 which may act as support for current expiry. 

Bank Nifty Call strike was at 38000 followed by 37500 which witnessed significant OI concentration and may act as resistance for current expiry

NSE Nifty 50 trading strategy 

The strategy which we are suggesting for the week with expiry schedule at 27th January 2022 is a Neutral strategy called as Iron Butterfly, which involves selling of one lot of Nifty 17,600 Call @ 156 and selling of one lot of Nifty 17,600 Put @ 137 and simultaneously buying one lot of 17,900 call @ 42 & buying one lot of 17,300 put @ 50. Both risk and reward in this strategy are limited and the gains in the strategy will be accrued between two break even points i.e 17,800 on upside and 17,400 on downside. The assumption for the said strategy is that, Nifty in this monthly expiry is likely to remain in the range of 17,800 to 17,400 hence the maximum profit of Rs 10,050 will happen if the Nifty closes at 17,600. On the other hand, if Nifty expiry close is above 17,801 or below 17,399 then maximum loss incurred will be Rs 4,950.

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

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.