“The sell-off post the gap-up opening on Wednesday showcases the resilience of the bears as they swept away the gains and eventually dragged the index to the lower terrain and below 19,400. Technically, on a closing basis, there are hardly any alterations in the price chart, but with the big bearish candle formation, it is likely that the time-wise correction phase remains intact,” Osho Krishan, Senior Analyst, Technical & Derivative Research at Angel One said.
Krishnan sees a strong support at 19,300 with the sheet anchor lying around the 19,250-19,200 zone and 19,500 acting as a strong resistance and only a decisive breakthrough will re-strengthen the undertone in his opinion.
Analyst Kunal Shah, Senior Technical & Derivative analyst at LKP Securities also sees strong support in the 19,300-19,250 range and said that a failure to sustain above this level could potentially trigger a continuation of the downward movement. “Amidst this downturn, the addition of substantial open interest in the 19500CE options signifies that the index is poised to expire below the 19,500 mark,” Shah added.
The August series was dominated by the bears with the headline index falling 1.6% or over 300 points from the previous series.
Commenting on trends, expert Rajesh Palvia, who is Senior Vice President – Technical and Derivatives Research at Axis Securities tells ETMarkets that the current series witnessed short covering in Nifty with a marginal increase in price (0.03%) and a 28% decline in OI where there was unwinding of 28 lakh shares in OI, decreasing from 74.25 lakh to 53.55 lakh shares as on Wednesday, August 30 closing.
The Nifty Put-Call Ratio (PCR), a sentiment indicator used by traders to gauge the market mood, is currently at 0.91, indicating a flat-to-positive movement for expiry, the Axis Securities expert said further.As for Bank Nifty, the August series witnessed a long unwinding with a decrease in price of 0.60% and a decrease in OI by 19% where the shedding of 2.37 lakh shares in OI occurred, decreasing from 12.58 lakh to 10.21 lakh shares, Palviya said. Meanwhile, Nifty August series rollover stands at 60%, down 2.37% in price and 0.06% decrease in OI indicating long unwinding, he added. The rollover stands at 57%, down 3.81% in price and up 13.74% in OI, indicating a short build-up.
The NSE OI data reveals the highest concentration at 19,300 in Nifty Put option at 2.44 lakh followed by 19,200 (2.13 lakh) and 19,000 (1.85 lakh) which may act as support for today’s expiry. On the Call front, the highest OI is seen at 19,500 (3.16 lakh) followed by 19,400 (2.97 lakh) and 19,600 (2.62 lakh) which is likely to act as resistance.
“There was significant Call writing seen at 19,450 and 19,400 and unwinding at 19,000 while on the Put side it was at 19,350 strike,” he said, suggesting an immediate trading range between 19,250 and 19,500 levels.
For Bank Nifty Put options, the highest OI was seen at a strike price of 44,000 (2.76 lakh) followed by 43,500 (1.70 lakh) and 43,800 (1.24 lakh) which could act as support for current expiry. On the Call side, the highest OI stood at 44,500 (3.54 lakh) followed by 45,000 (3.53 lakh) and 44,700 (3.48 lakh) which could act as resistance.
“Call writing was seen at 44,400, 44,700 and 44,800 strike while on the Put side, it was at 44,000 and 43,600 strike and unwinding at 44,500 and 44,400. Options data indicated an immediate trading range between 43,800 and 45,000 levels,” the Axis Securities analyst highlighted.
Implied volatility of Nifty ATM (At The Money) options for the current series is at 10%, while INDIAVIX is at 11.80% both indicating lower volatile movement on either side in the expiry session, Palviya said.
Nifty, Bank Nifty Trading Strategy
Pallviya’s suggestion to traders is to initiate a moderately bullish strategy with reduced premium outflow and a lower breakeven point called the ‘Bull Call Spread’ of the September 7 weekly expiry where traders can buy one lot of 19,350 call strike at Rs 120 and simultaneously sell one lot of 19,600 call strike at Rs 26 so that net outflow or maximum loss can be restricted up to Rs 4,850.
According to him, if Nifty closes above 19,444, the strategy will start making a profit, however as the risk is limited so will the profit. “The maximum gains will be restricted up to Rs 7,800 only because the gains of the long 19,350 strike call will be offset by the sold 19,600 strike call if Nifty closes above 19,600 on expiry.
As for Bank Nifty, the strategy suggested by him is a market-neutral one called ‘Long Strangle’ for the September 7 weekly expiry. He recommends buying 44,300 Call option and 44,400 Put option with premiums of Rs 315 and Rs 318, respectively making a total premium outflow of Rs 9,495 (633 points).
“As it is a debit spread, from a profit perspective this strategy can generate theoretically unlimited profit while the loss is restricted to the total premium paid if Bank Nifty closes between 44,300 and 44,400 on expiry. If Bank Nifty closes above the upper breakeven level of 44,933 or the lower breakeven level of 43,767 on expiry and sustains on either side then the profit can be unlimited,” Palviya pointed out.
His advice to traders is to maintain a combined premium (i.e add a premium of call + put together) and stop loss of 250-280 points to curtail losses if Bank Nifty doesn’t make a strong move.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)