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Nifty support at 15500, Bank Nifty negative in short-medium term; use Long Straddle in F&O expiry week

Nifty Put options OI distribution shows that 15800 has highest OI concentration followed by 15500 & 15700 which may act as support for current expiry.

Nifty, Nifty bank
We are suggesting a market-neutral strategy called Long Straddle for weekly expiry at 19th May 2022

By Rajesh Palviya

Nifty extended bearish sentiments for most part of the week dragged it lower to close in negative territory. NSE Nifty 50 index closed at 15782 with a loss of 629 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 crosses and sustains above 16000 level it would witness buying which would lead the index towards 16400-16700 levels. However if the index breaks below 15650 level it would witness selling which would take the index towards 15400-15100 levels. For the week, we expect Nifty to trade in the range of 16300-15200 with a negative bias .The  daily and 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 15786 on a negative note with 10.16% decrease in the open interest indicating Long Unwinding. Nifty Futures closed at a premium of 5 points compared to the previous day premium of 3 points. FIIs were Buyers in Index Futures to the tune of 2860 crore and were Sellers in Index Options to the tune of 1198 crore, Buyers in the Stock Futures to the tune of 533 crore. Net Buyers in the derivative segment to the tune of 1889 crore.   

                                  

India VIX, the volatility index, is at 23.49 v/s 24.36. Nifty ATM call option IV is currently 24.22 whereas Nifty ATM Put option IV is quoting at 25.82. Index options PCR is at 0.73 v/s 0.63 & F&O Total PCR is at 0.79.

Nifty Put options OI distribution shows that 15800 has highest OI concentration followed by 15500 & 15700 which may act as support for current expiry. Nifty Call strike 16000 followed by 16300 witnessed significant OI concentration and may act as resistance for current expiry.

Bank Nifty Outlook

Bank Nifty Technical Outlook 

Bank Nifty started the week with a downward gap and selling pressure for most part of the week led it  to close on a negative  note. Bank Nifty closed at 33121 with a loss of 1470 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 and has closed below its low indicating weakness at current levels . The chart pattern suggests that if Nifty Bank crosses and sustains above 34000 level it would witness buying which would lead the index towards 34800-35500 levels. However, if the index breaks below 33000 level it would witness selling which would take the index towards 32000-31500. Bank Nifty is trading below 20, 50, 100 and 200 day SMA which are important short term moving averages, indicating negative bias in the short to medium term. For  the week, we expect Bank Nifty to trade in the range of 34500-32500 with a negative bias.

Bank Nifty Derivative Outlook

Bank Nifty Put options OI distribution shows that 33500 has highest OI concentration followed by 33000 & 32500 which may act as support for current expiry. Bank Nifty Call strike 33500 followed by 34000 witnessed significant OI concentration and may act as resistance for current expiry.

NSE Nifty 50 index trading strategy

India VIX closed at 23.49% up by 11% on weekly basis indicating markets are likely to make a strong move in either of the directions with increased Implied volatility, and to take advantage of the same we are suggesting a market-neutral strategy called Long Straddle for weekly expiry at 19th May 2022.This strategy involves buying of (ATM) CALL & PUT one lot each of 15,800 strike having premium of 172 & 182 respectively garnering in total premium outflow of Rs 17,700 (354 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 exactly at the Long/Short strikes i.e 15,800 on expiry; however once Nifty breaches the upper breakeven level of 16,154 or the lower breakeven level of 15,446 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. The strategy will generate significant profits once Nifty breaches the range of 16,154 on upside or 15,446 on lower side on the expiry and also closes above or below the break even points.

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

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