F&O expiry- Use Put Ladder in Nifty for profits; Bank Nifty support at 34000; here’s trading day strategy

F&O expiry: Use Put Ladder in Nifty for profits; Bank Nifty support at 34000; here’s trading day strategy

By Rajesh Palviya

On the daily chart, the NSE Nifty 50 index formed a sizable bearish candle and has closed below previous session’s low indicating negative bias. The index is moving in a Lower Top and Lower Bottom formation on the daily chart indicating negative bias. The chart pattern suggests that if Nifty 50 crosses and sustains above 16800 level it would witness buying which would lead the index towards 16900-17000 levels. However if the index breaks below 16600 level it would witness selling which would take the index towards 16500-16300. Nifty is trading below its 20, 50, 100, and 200-day SMA which indicates negative bias in the short to medium term. Nifty continues to remain in a downtrend in the short to medium term, so selling on rallies continues to be our preferred strategy.

Nifty 50 Derivative Outlook

In Nifty current series there has been a Short Build Up witnessed with decrease in price of -0.10% and increase in OI by 26%  as of Wednesday wherein there was addition of 22.40 lakh shares in OI, increasing from 85.15 lakh to 107.56 lakh shares. Nifty current month rollover stands at 17.13% as of Wednesday. Nifty Put Call Ratio, a sentiment indicator used by traders to gauge the market sentiment and mood, is currently at 0.65 compared to 1.36 of last week, which is kind of oversold at lower levels and might augment for a small bounce back.

India VIX, a market volatility indicator often called the fear gauge, is currently trading 21.88% compared to 19.38% of last week. Implied Volatility of Nifty ATM options for the current series is at 23.03% in contrast to 18.48% of last week, indicating volatile movement on either sides in the expiry session.

Nifty Put options OI distribution shows that 16,500 has highest OI concentration followed by 16,600 & 16,400 which may act as support for current expiry and on the Call front 17,000 followed by 16,900 & 16,800 witnessed significant OI concentration and may act as resistance for current expiry. In weekly options there was Call writing seen at 16,900 strike followed by 16,800 & 17,000 while on the Put side noticeable activity of writing was witnessed in 16,500,16,600 & 16,700 strike prices. Options data suggest an immediate trading range between 17,800 and 17,300 levels.

Nifty Open Interest Concentration

Nifty Option OI Change

Bank Nifty Outlook

On the daily chart, Nifty Bank index formed a big bearish candle and has violated multiple day support of 35500 indicating negative bias. The index is moving in a Lower Top and Lower Bottom formation on the daily chart indicating negative bias. The chart pattern suggests that if Bank Nifty crosses and sustains above 35500 level it would witness buying which would lead the index towards 35800-36000 levels. However if the index breaks below 35200 level it would witness selling which would take the index towards 35000-34600. Bank Nifty is trading below 20, 50, 100 and 200 day SMA indicating negative bias in the short to medium term. Bank Nifty continues to remain in a downtrend in the short to medium term, so selling on rallies continues to be our preferred strategy. 

The daily and weekly strength indicator RSI is moving downwards and is quoting below its reference line indicating negative bias.

Nifty Bank Derivative Outlook

In current series there has been a Short Addition witnessed in Bank Nifty Fut with an decrease in price of -3.17% and increase in OI by 16.20% as of Wednesday, wherein there was addition of 4.08 lakh shares in OI, increasing from 25.20 lakh to 29.28 lakh shares. Bank Nifty Current series rollover stands at 7.53% as on today, while Bank Nifty Put Call Ratio a sentiment indicator used by traders to gauge the market sentiment and mood, is currently at 0.53 compared to 0.92 of last week indicating a probable bounce back.

Bank Nifty Put options OI distribution shows that 35,000 has highest OI concentration followed by 34,000 & 34,500 which may act as support for current expiry and on the Call front 36,000 followed by 36,200 & 36,500 witnessed significant OI concentration and may act as resistance.

In weekly options Call writing seen at 36,000, 36,500 & 36,200 strike while on the put side it was seen at 35,000 , 35,200 & 34,500 Options data indicated an immediate trading range between 37,000 and 38,000 levels.

Bank Nifty Open Interest concentration

Bank Nifty OI change

NSE Nifty 50 trading strategy for weekly F&O expiry day

The strategy which we are suggesting for the weekly expiry scheduled on 12th May is a Bearish strategy namely PUT LADDER, which involves buying of one lot of Nifty 16,700 PUT @ 238 and selling of one lot each of 16,450 PUT @ 144 & one lot of 16,200 PUT @ 79. Put Ladder is a limited profit and unlimited risk strategy; which is an extension to the Put spread and to further bring down the cost of the strategy (Net premium) one more extra leg of OTM PUT is sold and hence any move below the sold leg can incur unlimited loss.

The maximum profit of Rs 11,750 will be attained at 16,450 levels, while strategy will start making a loss below 16,000. The cost of the strategy involves outflow of Rs 750 which is the maximum loss if Nifty closes & remains above 16,685 levels on expiry, however any sharper movement on lower side could result in losses and, as an extra put has been sold it’s advisable to exit the strategy in total to avoid unlimited losses below 15,950. Break Even points of the strategy are 16,685 on upside & 15,735 on the lower side.

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