The momentum indicator MACD has gone into sell mode again on the daily charts and it continues to remain in the sell mode on the weekly charts.
“The overall short-term bias remains negative, however, until a close below 23,500 doesn’t happen there is a chance of a bounce back from the current levels,” said Jay Thakkar, Head of Derivative and Quant Research at ICICI Securities.
As far as the derivatives data is concerned, the weekly PCR is at 0.55 levels and the put concentration in the near term is at 23,300 levels as it has witnessed good additions, hence 23,300 is a crucial support below 23,500 levels.
On the upside, there is a huge addition on the 23,800 strike on the call front and above that 24,000 levels, so the range is 23,500 to 23,800 and beyond that, it is 23,300 to 24,000 levels, Thakkar added.
The max pain and modified max pain levels are 23,750 and 23,585 respectively which will act as support and resistance level respectively.The current straddle cost is at 175, hence the range based on the same is at 23,800 and 23,400 on an approximate basis. Therefore, Jay Thakkar suggests a Short Iron Butterfly strategy to trade the volatility and an expected range-bound session.
Short Iron Butterfly
A short iron butterfly spread is a four-legged strategy that consists of a Bull Put Spread and a Bear Call Spread in which the Short Put and Short Call have the same strike price. All options will have the same expiration date, and the three strike prices are equidistant.
ETMarkets.com(Prices as of November 13)
Below is the payoff graph of the strategy:
ETMarkets.com(Source: ICICI Securities)
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