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Nifty breakout band appears to be 17800-18270; Bank Nifty downside marker placed near 42200 level

A truncated expiry week, since Thursday is a trading holiday due to Republic day, could lead to a surprise rise in volatility on Monday or Tuesday.

Nifty breakout band appears to be 17800-18270; Bank Nifty downside marker placed near 42200 level
Levels-wise, the breakout band for Nifty appears to be 17800-18270, but we will be watching the performance near 18120 for early entry into moves of reasonable length, given the low VIX.

By Anand James

Usually, traders show a pronounced disinclination to take strong directional bets ahead of the Union Budget. This has been the case this time too, defining the trading construct of the last week, which saw tight trading ranges, slippage in VIX from 17 levels to sub 13 at one point, but at the same time, rise in micro volatility. However, a truncated expiry week, since Thursday is a trading holiday due to Republic day, could lead to a surprise rise in volatility on Monday or Tuesday. Meanwhile, despite cooling in inflation, rate hike rhetoric has continued to be loud, keeping a lid on upside attempts.

The last weekly expiry saw the IT and metal sector witnessing a significant long buildup. Rolls have begun to pick up in the capital goods, metal, media, bank, and chemical sectors, with the highest rolls seen in Axis bank, Asian paints, Colpal and Adani Port so far.

The fact that VIX is slipping has thrown cold water on directional bets on Nifty. Hence we prefer Nifty Bank which was looking promising even on Friday, when Nifty was kept in tight ranges. Also, Bank Nifty has a tendency to trade in bigger ranges and will provide greater mobility post results of ICICI Bank and Kotak Mahindra Bank which together constitute more than 33% of weight in the Nifty Bank Index. Levels-wise, the breakout band for Nifty appears to be 17800-18270, but we will be watching the performance near 18120 for early entry into moves of reasonable length, given the low VIX. 

For strategy traders, with expiry and budget in purview, the long butterfly may be attempted along the 17800-18050-18300 strikes. In the case of Nifty Bank, we prefer to take a directional bet on the upside with either long calls, or futures, to stay clear of theta, given early expiry, with the downside marker placed near 42200.

(Anand James is Chief Market Strategist at Geojit Financial Services. The views expressed are author’s own.)

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First published on: 23-01-2023 at 12:57:08 pm