Weekly Options Strategy: Go for bullish backspread

Weekly Options Strategy: As Nifty looks to consolidated, go for bullish backspread

By Raj Deepak Singh ICICIdirect, ET CONTRIBUTORS

Synopsis

The Nifty extended its gains during the monthly settlement and closed the week near 17100 levels. The aggressive short covering from FIIs and rebound in global markets helped Nifty to gain almost 7% during the July series which is its first positive series since March. While midcap and small cap indices relatively underperformed this week

ANI

Strategy Positions:

Short Nifty 4 August 2022 17000 Put at 59 & buy 4 August 2022 16700 Put at 16, Total premium inflow: 43; Target: 1; Stop loss: 64.5 (1 Lot Each)

Rationale

  • The Nifty extended its gains during the monthly settlement and closed the week near 17100 levels. The aggressive short covering from FIIs and rebound in global markets helped Nifty to gain almost 7% during the July series which is its first positive series since March. While midcap and small cap indices relatively underperformed this week, we believe they might be in limelight in coming sessions as Nifty may move into some consolidation after a sharp gain of almost 13% from lows.
  • From the options space, we are witnessing significant Put writing at ATM strikes with 17000 Put holding the maximum open interest. Call writers are getting trapped and they have rolled their positions towards 17500 strikes as well. However, we believe that Nifty may experience some consolidation in short term with declines towards 16800 remains a buying opportunity.
  • Nifty is starting the August series with just 9 million shares which is one of the lowest we have seen at inception. The significant covering in the settlement week by FIIs may have caused lower OI. FIIs have turned net buyers first time in 2 months. They covered their shorts and have formed fresh longs as well which should keep the momentum intact.
  • While India VIX hasn’t increased much despite recent weakness, US VIX has also declined substantially and it is at its lowest levels since April. Hence markets are not expecting any major weakness and focus might shift to mid-cap stocks where stock specific action might be seen in coming sessions.
  • Trader will be in maximum profit if Nifty closes above 17000 levels on 04th August expiry.

Pay-Off Diagram:

Payoff diagramAgencies

(The author, Vinod Nair, is Head of Research at Geojit Financial Services.)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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