28,000 on Nifty Bank likely to act as resistance; deploy ‘Modified Call Butterfly’ strategy
The weekly increment of OI in the index was over 4 percent. On the other hand, Bank Nifty futures had long additions of almost 9 percent and an equal amount of short unwinding
Research by Quantsapp Advisory, SEBI-registered research analyst (Reg. No. INH000006332)
The open interest (OI) activity in Nifty50 was conducive for the bulls and was indicative of incremental optimism in the index via the addition of longs.
The weekly increment of OI in the index was over 4 percent. On the other hand, Bank Nifty futures had long additions of almost 9 percent and an equal amount of short unwinding was seen with almost no change in open interest.
Among stock futures, for the first time in many weeks, the number of stocks with long additions were higher than the number of stocks with short additions.
However, OI activity with the highest number of stock futures was short covering. This indicates a push from the outgoing pessimism being higher than the incoming optimism.
Last week, India VIX hit the lowest level since August which is a positive sign for the bulls. On the options front, Nifty’s movement did trigger some upward shifts in the call writers, however, repeated reversals from 11,200 and around keeps the strikes above the said level highly congested.
On the other hand, at the lower end of the range, the level of 11,000 is almost equal to the heaviest Put of 10,800 in terms of OI.
After many weeks even in Bank Nifty, more liquid weekly expiry options are now composed with moderately bullish OIPCR of greater than one.
Also, the infamous level of 28,000, which was a hurdle, with futures trading higher could now halt the index in case of nervousness.
Considering the expected continuation of outperformance in Bank Nifty due to dual force of incremental optimism and exiting pessimism a low cost modified Call Butterfly on Bank Nifty is advised.
Modified Call Butterfly is a four-legged strategy where 1 lot of Call close to current underlying level is bought against that 2 lots of higher strike calls are sold and 1 more lot of Call is bought but closer to the call sold strike.
This keeps the lower but constant profits in case of an upward breakout. This is a fairly risk-averse and a universal strategy.
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This trade idea was published on 16 Sep 2019 by Shubham Agarwal for Quantsapp Advisory, a SEBI-registered research analyst (Reg. No. INH000006332) and an independent proprietorship, not Quantsapp Private Limited. It reflects the market on that date and is not a current recommendation.
First published on 16 Sep 2019: prices, lot sizes and expiries are those of that time. They are illustrations for education only, not investment advice. Derivatives trading carries risk; read all scheme and risk documents before trading.