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Deploy Bank Nifty Modified Put Butterfly strategy: Shubham Agarwal

Long unwinding open interest has been observed in BankNifty, followed by short at end of the week, its prudent to approach the Bank Nifty with a low risk Modified Put Butterfly.

SHUBHAM AGARWAL | 12-Apr-21
Reading Time: 3 minutes

Wide intra week swing was seen in Nifty in the past week. Nifty started the week with heavy turbulence losing around 2% in a single session. The pullback in the followed days helped Nifty to reclaim the level of 15000 again.

Over the week Nifty gyrated within 14500-15000 level and ended the week down 0.5%. On the Nifty Fut. Open Interest (OI) side, OI Built-up was nearly 5%.

Bank Nifty was more compressed with the selling pressure over the week. Bank Nifty slipped all the way from 34000 to 32250 nearly (1700 points), ending the week at 32600 losing over 4.5%.

Looking at the Nifty weekly expiry option data, vital resistance stands at 15000 levels followed by the 15500 levels. On the downside, 14500 stands as the immediate support level and Highest Put OI stands at 13500 levels acting as the vital support on the lower side.

Bank Nifty OI (Open Interest) data shows the wider range for weekly expiry. However, Call writers are more active compared to Put writers and seen adding position till the 40000CE strike. Bank Nifty vital resistance stands at 33000 followed by 34000. Currently, Bank Nifty is trading at the vital support level of 32500, further any OI Unwinding at this level could lead Bank Nifty to fall more, further support stands at 32000 levels.

India VIX has spiked over 6% from 19.99 to 21.21. However, cool off in the IV from its high level has provided strength to Nifty. India VIX has declined gradually over the week to 19.8 level from its high 21.2. VIX closed at the level of 19.8 compared to 19.99 last Friday.

Looking at the sentimental indicator, Nifty OIPCR for the week has declined from 1.358 to 1.288. Bank Nifty OIPCR over the week, also declined from 0.88 to 0.72 compared to last Friday. Overall data indicate higher Put writers versus call writers over the week for the Nifty & Bank Nifty.

Moving further to the weekly contribution of sectors to Nifty. IT has provided support by 133 points, followed by marginal support from Metal (40 points). Whereas PVT Bank led the downfall by contributing -225 points to Nifty.

Looking towards the top gainer & loser stocks of the week in the FnO segment, JSW Steel topped by gaining around 22%, followed by Cadila Healthcare (17%), Lal Pathlab (16%). Whereas UBL lost 11% followed by PVR & Bajaj Finance (-7.5% each).

Conclusion: Considering the continuous long unwinding followed by short at the end of the week in the Bank Nifty, it is prudent to approach the Bank Nifty with a low-risk strategy as Modified Put Butterfly .

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SHUBHAM AGARWAL is a CEO & Head of Research at Quantsapp Pvt. Ltd. He has been into many major kinds of market research and has been a programmer himself in Tens of programming languages. Earlier to the current position, Shubham has served for Motilal Oswal as Head of Quantitative, Technical & Derivatives Research and as a Technical Analyst at JM Financial.

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