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Deploy modified Put Butterfly spread strategy on Nifty this week: Shubham Agarwal

There has been a strong call accumulation at the higher strikes , with a sequence of Short – Short covering, forthcoming week can be approached with a modified put butterfly spread.

SHUBHAM AGARWAL | 17-May-21
Reading Time: 3 minutes

In the past week, Nifty tried to sustain the 15,000-mark yet again but failed. Over the week, the index witnessed a continuous fall from the high levels. In the 4-day week, Nifty Futures slid downwards after touching 15,000-mark and closed at 14,715, largely ranging between 15,020 and 14,620.

Overall, Nifty Futures closed the week with a loss of over 1% whereas, on the OI Open Interest front, Nifty OI built up was nearly 5.5% attributed to Short.

Looking at Bank Nifty, it saw more selling pressure compared to Nifty. After touching 33,500 level, Bank Nifty continued to slide and closed the week at 32,200. The index moved between 33,500 and 32,180 - about 1,300 points range. Overall, Bank Nifty Futures closed the week with a loss of 2.5% and on the other hand, Bank Nifty OI built up was nearly 10% attributed to Short.

Further diving into the Nifty's upcoming weekly options expiry. Immediate resistance stands at 15,000 level whereas immediate support is placed at 14,600 and highest Put OI stands at 14,000. Overall data indicates more of call writers compared to put writers.

Looking at the Bank Nifty's upcoming weekly expiry data. On the upper side, immediate resistance stands at 32,500 followed by 33,000. Whereas, on the downside, 32,000 is the immediate support and 31,000 is the vital support level.

India VIX the fear gauge, declined nearly 4.8% from 20.8 to 19.8 over the week. Cool-off in the IV from its high level has given relaxation to market. However, keep a watch as in the past it has been observed that INDIA VIX gets big swings whenever it is trading near to 19.8-20 levels. Further, any uptick in India Vix can propel downside momentum in Nifty.

Looking at the sentimental indicator, Nifty OIPCR for the week has decreased from 1.33 to 1.112. Overall data indicates Call writers are adding positions over the week in Nifty & Bank Nifty.

Moving further to the weekly contribution of sectors to Nifty. Major indices like private banks, IT, NBFC dragged the Nifty. Private Banks contributed -100 points to Nifty followed by IT (-65 points). Whereas FMCG and capital good indices stood strong, contributing nearly 50 and 20 points, respectively.

Looking towards the top gainer and loser stocks of the week in the F&O segment. Godrej Consumer Products gained 21%, followed by UPL 18%, BHEL 17%. Whereas Jindal Steel lost -12.5%, SAIL -12%, Bandhan Bank -8%.

Conclusion:
Considering strong call accumulation at the higher strikes with a sequence of Short – Short covering, it is advisable to approach next week with a 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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