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Deploy modified Put butterfly strategy in Nifty: Shubham Agarwal

Considering the bearish momentum along, upcoming week can be approach with a low-risk approach like modified put butterfly strategy in Nifty.

SHUBHAM AGARWAL | 24-Jan-22
Reading Time: 3 minutes

undefinedAfter a great upside move for four consecutive weeks, Nifty gave a halt to its rally last week. Nifty was unable to sustain near its all-time high levels and crashed vertically to the 17650 levels.

The Nifty future during this week ranged from 18360 to 17500, ending the week 3.50 percent loss.

IT and NBFC sector contributed the most for this fall, Nifty witnessed short built-up on OI ( open interest ) front in the week gone by.

Outperforming the benchmark index, Nifty Bank shed 2% during the last week.

Bank Nifty traded in the broader range of 38965 - 37275 and lost more than 700 points last week. The index also witnessed Long Unwinding on OI front in the week gone by.

Further diving into the Nifty upcoming weekly expiry CE writers showed aggression by building more position compared to PE writers. Nifty immediate support stands at the 17500 levels, where nearly 41L shares have been added, followed by 17000 levels with 57L shares.

On the higher side, an immediate resistance level is at 17900 where nearly 52L shares have been added followed by vital resistance at 18000 with addition of 94L shares.

Looking at the Bank Nifty upcoming weekly expiry data, on the upper side, immediate and vital resistance stands at 38000 (22 lakh shares). Whereas, on the downside, the immediate support level stands at 37500 (12 lakh shares), followed by 37000 (16 lakh shares).

India VIX, fear gauge, increased by 15% from 16.55 to 19.10 over the week. India VIX is trading near the lowest level of pre-covid crash. A cool off in the IV has given relaxation to 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 1.248 to 0.88. Bank Nifty OIPCR over the week decreased from 0.887 to 0.744 compared to last Friday. Overall data indicates more of CE writers over PE writers in Nifty.

Let's move into the weekly contribution of sectors to the Nifty. Most of the sectoral indices have negatively contributed such as IT, NBFC and PVTB have collectively contributed nearly 400+ in the Nifty 646 points loss. Whereas only Power alone contributed on the marginally on positive side.

Cholamandalam Financial topped by gaining over 11.3%, followed by Hero MotoCorp 6.6% and Biocon 5.4% were the top gainers of the week in the F&O segment. Whereas, Dr. Lal PathLabs losing over 17.3%, Naukri 16.1%, L&T Technology Services 13.6% over the week, were top laggards in the said segment.

Considering the bearish momentum along, upcoming week can be approach with a low-risk strategy like modified put butterfly in Nifty.

Learn and read more about technical analysis from Quantsapp classroom which has been curated for understanding of option buyer 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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