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Deploy Nifty Modified Put Butterfly spread strategy: Shubham Agarwal

Considering the mix of Longs & Short over the week gone by, and the intraday swings in VIX, it is prudent to approach the market with a low-risk strategy

SHUBHAM AGARWAL | 08-Mar-21
Reading Time: 3 minutes

Market

Indian equity market showed heightened volatility over the past week amid the weakness in global market. Nifty futures, over the week, gyrated between 14,650 and 15,300 and ended up gaining 2.5% for the week.

In the starting of the week, Nifty had short covering drive followed by Long Built up for the next two days having price momentum from 14,650 to 15,300 levels. However, pull back in the last two sessions disturbed the momentum. Shorts were seen - though the price decline was marginal, OI spiked by 24%.

Bank Nifty underperformed Nifty with selling pressure seen at high levels. Bank Nifty futures, over the week, gyrated between 34,890 and 36,580 - nearly 1,700 points and ended up gaining nearly 1.2%.

Nifty's upcoming weekly Options data reflect broad range of Call addition at 15,000-16,000 strike.

Multiple resistance points can be seen in Nifty. However, immediate resistance stands at 15,000 and vital resistance stands at 15,500 strike. Put has remained on lighter side in term of addition as compared to calls. Immediate support stands at 14,500 strike, followed by vital support level at 14,000.

Similarly, Bank Nifty's upcoming weekly Options data reflect wide range of addition in Open Interest for the Calls as compared to Puts. Multiple resistance stands on the upper level. Diving into data indicates immediate resistance at the level of 35,500 and vital resistance at 36,000. However, 35,000 stands as the immediate support level, followed by vital support at 34,000.

INDIA VIX, the volatility indicator, has remained more or less same over the week at the level of 25.33. However, spike in VIX over the last two days gave caution to the market. Further, any sustained uptick in India VIX could be detrimental for the up trend. Key level of 30 needs to be watched out for.

Looking at the sentimental indicator, Nifty OIPCR for the week has slightly increased from 1.047 to 1.121. Whereas, Bank Nifty OIPCR remained more or less the same over the week, closing at the level of 0.699. Overall, data indicates higher Call writing versus Put writing over the week for Bank Nifty.

Moving further to the weekly contribution of sectors in Nifty. OIL (84 points) & Cement (74 points) sectors have contributed the most to Nifty. Whereas Telecom (-31) & PSU Banks (-21) were negative contributors.

Let's look at the top gainer & loser stocks of the week in the F&O segment - Deepak Nitrite topped by gaining around 15.5%, followed by the Tata Power (13%), AU Small Bank (12.2%). Whereas IDEA bled the most, down around (-7%), followed by SAIL (-6.6%), and Apollo Hospitals (-5.5%).

Conclusion: Considering the mix of Longs & Short over the week gone by, and the intraday swings in VIX, it is prudent to approach the market with low-risk strategy like 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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