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Deploy Nifty Modified Call Butterfly Spread Strategy: Shubham Agarwal

The upcoming week, markets could be in consolidation, we can approach it with a low-risk strategy like a modified butterfly spread strategy using calls.

SHUBHAM AGARWAL | 26-Jul-21
Reading Time: 3 minutes

In the week gone by, indices – Nifty and Bank Nifty – were struggling to inch higher as we have witnessed series of gap ups and gap downs this week.

Nifty during the week gyrated in a broader range of 15,900—15,600 and ended the week with marginal loss of 0.57% along with OI ( Open Interest ) up of 0.19%.

Bank Nifty, on the other hand, traded between 35,500 and 34,400. Bank Nifty ended the week by losing 2.33% along with the OI Built-up -5% attributed to Long Unwinding.

Further diving into the Nifty's upcoming weekly expiry, Call writers built more positions compared to put writers. Nifty Vital resistance stands at the 16,000 levels - highest among all followed by immediate resistance 15900 levels with 42L shares.

On the lower side, 15,800 stands at the vital support level where nearly 36L shares followed 15,500 will work as immediate support with the addition of 36L shares.

Looking at the Bank Nifty's upcoming weekly expiry data. On the upper side, immediate resistance stands at 35,500 (12 lakh share) followed by 36000 (12 lakh shares). Whereas, on the downside, 35000 (14 lakh shares) stand at the immediate support level and are followed by 34500 (11 lakh shares) as the vital support level.

India VIX, fear gauge, increase nearly 2% from 11.71 to 11.76 over the week. India VIX is trading near the lowest level of the pre-covid crash. Cool off in the IV has given relaxation to the market. Further, any downticks in India VIX can push the upwards momentum in Nifty.

Looking at the sentimental indicator, Nifty OI PCR for the week has decreased from 1.235 to 1.153. Bank Nifty OIPCR over the week increased from 0.798 to 0.938 compared to last Friday. Overall data indicates more Call writers over Put writers in Nifty and vice-versa in Bank Nifty.

Moving further to the weekly contribution of sectors to Nifty. Sectoral conurbation was mixed last week. FMCG, Oil and Telcom have positively contributed nearly 16.08, 15.48 and 12.40 points in the Nifty. While on the other hand Private Bank, Auto and NBFC have contributed 99.76, 21.68 and 17.60 negatively in Nifty loss of 127.19.

Looking towards the top gainer & loser stocks of the week in the F&O segment. Jubilant Food topped by gaining over 12.8%, followed by ACC 9.40%, Gujarat Gas 6.9%. Whereas Idea has lost over 12%, Indus Tower 8.6%, L&T Finance Holdings 5% over the week.

Conclusion

Considering the consolidation, an upcoming week can be approached with a low-risk strategy like Modified Call Butterfly in Nifty.

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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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