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Deploy Nifty modified call butterfly spread strategy: Shubham Agarwal

Considering the momentum prevalent in the market, one can deploy a strategy which is relatively risk free, in the form of a modified call butterfly spread.

SHUBHAM AGARWAL | 03-May-21
Reading Time: 3 minutes

April expiry: Over the last week, broader indices were seen in good momentum. Nifty ended the week by gaining around 2.5% closing at the level of 14,660. However, Nifty gyrated in a range of 600 points from 14,400 to 15,000 level.

Bank Nifty, on the other hand, gained nearly 3.7% and closed at 32,900 trading in a range of 32,150 to 34,300 - nearly 2150 points. Open interest Shedding was seen both in Nifty & Bank Nifty.

Further on the expiry-to-expiry basis, Nifty gained nearly 3.4% and Bank Nifty gained nearly 1.5%.

Moving forward to Nifty's upcoming Monthly Open Interest (OI), the heaviness of Call writers are clearly visible compared to Put writers. On an upcoming OI basis, an immediate hurdle can be seen at 15,000 and vital resistance at 16,000 level, whereas immediate support can be seen at 14,500 followed by 14,000-level.

In the Bank Nifty's upcoming Monthly Open Interest (OI), the heaviness of Call writers is clearly visible compared to Put writers. Call writers are seen adding positions till 40,000 level.

Looking at the monthly expiry rollover data, April Rollover was below average, standing at 64% versus 80% March expiry, same in Bank Nifty as well, Rollover stands at 64% versus 84% March expiry.

Stock-wise rollover, Adani Ports had the largest rollover of 90%, followed by Amara Raja Batteries (89%), Sun Pharma (88%). Whereas, Tata Consumer had the lowest rollover at 32.4%, FINNIFTY (42%), GAIL (44%).

Expiry-to-expiry basis, around 59 stocks were in long, 35 stocks, in short, 22 stocks were in long unwinding and 43 stocks were in short covering. Overall, 64% of stocks in the F&O segment ended up gaining.

India VIX, the fear gauge, has gradually increased over the week from 20.7 to 23.3 compared to last Friday. Keep a watch on VIX, any downtick in India VIX can propel the Nifty momentum.

Looking at the sentimental indicator, Nifty OIPCR for the week has decreased to 1.08 from 1.274. Bank Nifty OIPCR over the week has decreased to 0.84 from 1.037 compared to last Friday. Overall data indicate an increase in Call writers compared to Put writers.

| Moving further to the weekly contribution of sectors to Nifty.

All the sectors contributed positively, except auto. Private banks and oil & gas were the highest contributors to Nifty by 100 & 90 points, respectively.

Looking towards the top gainer & loser stocks of the week in the F&O segment, SAIL topped by gaining around 30%, followed by Sun TV (20%), TVS Motor (18%). Whereas M&M Financial lost 9%, AU Small Finance Bank (-6%) and Britannia (-6%).

Conclusion:
Deploy Modified Call Butterfly for upcoming weekly expiry, considering the momentum in the market is holding.

Deploy Modified Call Butterfly (06 May 2021 Expiry)

Rationale

Learn and read more about f&o ban list from Quantsapp classroom which has been curated for understanding of nifty open interest from scratch, to enable option traders grasp the concepts practically and apply them in a data-driven trading approach.

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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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