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Nifty to stay strong above 16800, but break below 16400 may invite bears; use Iron Butterfly for F&O expiry

The  chart pattern suggests that if Nifty crosses and sustains above 16800 level it would witness buying which would lead the index towards 17000-17400 levels

Nifty, bank nifty
The strategy which we are suggesting for the week with expiry schedule on 09th May 2022 is IRON BUTTERFLY

By Rajesh Palviya

NSE Nifty 50 started the previous week on a negative note and traded with extreme volatility on either side throughout the week. Nifty 50 index closed at 16,584 with a gain of 232 points on a weekly basis. On the weekly chart, the NIfty 50 index has formed a “Doji” candlestick formation indicating indecisiveness amongst market participants regarding the direction.

The  chart pattern suggests that if Nifty crosses and sustains above 16800 level it would witness buying which would lead the index towards 17000-17400 levels. However if the index breaks below 16400 level it would witness selling which would take the index towards 16000-15700. For the week, we expect Nifty to trade in the range of 17100-16200 with a negative bias . The weekly strength indicator RSI is above its  respective reference lines indicating positive bias.

Nifty 50 derivative outlook 

Nifty futures closed at 16604 on a negative note with 6.00% decrease in the open interest indicating Long Unwinding. Nifty Futures closed at a premium of 20 points compared to the previous day discount of 7 points. FIIs were Buyers in Index Futures to the tune of 187 crore and were Buyers in Index Options to the tune of 4253 crore, Buyers in the Stock Futures to the tune of 3087 crore. Net Buyers in the derivative segment to the tune of 7369 crore. India VIX index is at 29.98 v/s 20.32. Nifty ATM call option IV is currently 17.05 whereas Nifty ATM Put option IV is quoting at 17.77. 

Index options PCR is at 0.97 v/s 1.20 & the F&O Total PCR is at 0.9, Nifty Put options OI distribution shows that 16300 has highest OI concentration followed by 16500 & 16200 which may act as support for current expiry. Nifty Call strike 17000 followed by 16800 witnessed significant OI concentration and may act as resistance for current expiry.

Bank Nifty Outlook

Bank Nifty started the week on a positive note but witnessed selling at higher levels to end the week on weak note. Nifty Bank closed at 35275 with a loss of 338 points on a weekly basis. On the weekly chart the index has formed a bearish candle carrying either side shadows representing extreme volatility on either sides. 

The  chart pattern suggests that if Bank Nifty crosses and sustains above 36000 level it would witness buying which would lead the index towards 36500-37000 levels. However. if index breaks below 35100 level it would witness selling which would take the index towards 34800-34000. For  the week, we expect Bank Nifty to trade in the range of 36800-34800 with mixed bias. The daily and 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 35369 on a negative note with 4.44% increase in open interest indicating Short Build Up. Bank Nifty Futures closed at a premium of 94 points compared to the previous day premium of 85 points. Bank Nifty Put options OI distribution shows that 35000 has highest OI concentration followed by 35500 which may act as support for current expiry. Bank Nifty Call strike 35500 followed by 35800 witnessed significant OI concentration and may act as resistance for current expiry.

NSE Nifty 50 trading strategy for F&O expiry day 9 June 2022

The strategy which we are suggesting for the week with expiry schedule on 09th May 2022 is IRON BUTTERFLY, which involves Selling of one lot of Nifty 16,600Call @ 158 & Selling of one lot of Nifty 16,600 Put @ 155 and simultaneously buying one lot of 16,950 Call @ 35 & buying one lot of 16,250 put @ 45. Both risk and reward in this strategy are limited and the gains in the strategy will be accrued between two levels i.e 16,830 on upside & 16,370 on downside. The assumption for this strategy is that, Nifty is likely to remain-trade & conclude weekly expiry in the range of 16,850 to 16,350.Maximum profit of Rs 11,650/- will happens if the Nifty closes/expires at 16,600.On the other hand if Nifty expiry close is above 16,833 (upper bep) or below 16,367 (lower bep) then maximum loss incurred will be Rs 5,850/-

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

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