Deploy Modified Call butterfly spread strategy on Nifty: Shubham Agarwal

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undefinedIn the week gone by, broader indices - Nifty & Bank Nifty - were struggling to inch higher after days of continuous fall at the starting of the week. Nifty, during the week, gyrated in a broader range of 14,450-14,900 and ended the week by gaining over 1% along with Open Interest (OI) built up of 13% attributed to long.

Bank Nifty, on the other, gyrated between 31,600 and 33,350, support came from the PSU and private banks from the lower level that propelled the upside momentum in Bank Nifty. Bank Nifty ended the week with a marginal gain of 0.4% along with the OI Built-up 10% attributed to long.

Further diving into the Nifty's upcoming weekly option expiry, data shows a wide range with open interest distributed at multiple strikes of Calls and Puts. On the higher side, 15,000 followed by 15,200 remain key resistance points, while on the downside, 14,500 becomes the key pivotal support.

Looking at the Bank Nifty's upcoming weekly expiry data, open interest accumulation can be seen between 32,000 and 34,000 levels. The addition of OI is seen in ITM put of 33,000 showing positive bias.

Vital resistance and support stand at 34,000 and 32,000, respectively. Currently Bank Nifty is trading at proximity of 33,000, any further up move can propel the movement.

India VIX , fear gauge, has declined nearly 10% from 23.3 to 20.8 over the week. Cool-off in the IV from its high level has given relaxation to the market and shows confidence among market participants for the strength in the market.

Looking at the sentimental indicator, Nifty OIPCR for the week has increased from 1.07 to 1.324. Bank Nifty OIPCR over the week increased from 0.844 to 0.918 compared to last Friday. Overall data indicate Put writers are adding positions over the week in Nifty & Bank Nifty.

Moving further to the weekly contribution of sectors to Nifty. Metal contributed max (55 pts) led by buying in Tata Steel, Hindalco. NBFC contributed nearly 32 points, mainly helped by HDFC Life and SBI Life. Major negative contributors to the index were private banks - 74 points (HDFC Bank, ICICI Bank, Kotak Mahindra Bank) followed by Oil - 49 points (Reliance).

Looking at the top gainer & loser stocks of the week in the F&O segment, midcaps saw major rally with stocks like SAIL (20%), BHEL (20%), NMDC (19%), and Coforge (17%) seeing max gains, while stock like Tata Chemicals (-14.5%), Bandhan Bank(-10%), Sun TV (-9%) saw maximum loss during the week.

Conclusion

Consideration the mix of long built up and short covering was seen in the market towards the end of the week followed by sector and stock rotation, along with the decline in India VIX, the further market can be approached with a low-risk strategy like Modified Call Butterfly .

Rationale

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