What is the positioning right now? From last hour of trade yesterday, which saw panic, we recovered 150 point in first five-seven minutes today, we were a gap up, then build on the gap up and then erased everything. VIX also came down. Tell us, what does the data show as of now, long, short side and the cracking of VIX though elevated at 22, but lower than 25, what does it mean?
We have seen a profit booking decline in last four-five trading session and supports are slightly shifting lower. However, we are at 23-24 VIX, so wild swing of 200-300 points intraday cannot be ruled out. As of now, the next support for index goes at 50-day exponential moving average and that comes near slightly below to 22,500 zone and then major support goes at 22,222 which was the earlier important level which supported the market to get the breakout.
If I look at the data setup, volatility is slightly down by 4-5%, but we have seen fresh call writing at all higher strike.
I see the call writing at 22,700, 22,800 and till 23,000. So, because of the call writing, upside is likely to be kept.
However, at the same time we are witnessing some put writing at 22,300, 22,200. So as per the options OI, the wider trading range for the index is likely to be in between 22,200 to 22,800 zone. But as of now, the weekly setup is getting some negativity and daily trend is making lower highs, lower lows. So, till it does not surpass 22,750, 22,800 we will use the sell on bounce strategy in the market to play the broader range between 22,222 to 22,800 levels. Let me break it in two parts, I want your strategy which you are actually recommending today to your big HNI clients there. The trade, which is on right now and needs to be unwound in the first hour of trade when we open on Monday, that part first. And the actual election trade, which is say in the second half of Monday onwards to your Tuesday morning first hour. So, tell me the first trade. What are you recommending right now?
The strategy which we suggested, we are playing for two things. First, for theta decay, with the view that market may be in a broader range, but IV collapse will happen. Second, we want to hedge the position because the setup has taken a pause and if market drifts below a key zone, then some profit booking decline may be there.
What we have created in the 27th of June, that is the monthly expiry, we created one 1500 points bear put spread Nifty.
So, the strategy is all about buy 22,500 put, sell 21,000 put with the view that if market corrects, it may drift down, but not expecting any decline towards 21,000, so this is what we are doing.
And for the entire this strategy, the cost of the portfolio will be around 1%. Second strategy, which we initiated is sell at the money calls and puts excelling 22,500 calls and put and hedge by buying 1000 points OTM strike.
In that scenario, you need to sell 22,500 put and calls and buy 21,500 put and buy 23,500 call. So, we are playing with two things, one to hedge the position and second to get the benefit of theta decay.
Now, coming to your first question, that what to trade now for next few hours or to unwind. So, looking at the trade setup, I will go for intraday if I have to go with the direction, that I will go with the negative side with the view that market is forming the lower highs, lower lows from last three-four days and trend is turning lower.
So, I will go with 22,300 put. However, one need to keep in mind that decay may happen fast if you carry the position overnight.
But I want to play with the trend setup, which is slightly negative now. So, I will go with 22,300 put which is now near to 75 levels. I will buy this put near to 2230 with the view that once it can hit 350 marks.