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Deploy modified call butterfly spread strategy in Bank Nifty: Shubham Agarwal

There has been put writing accumulation, along with a long builtup on OI front, suggesting to approach the markets with a low risk strategy like BankNifty butterfly strategy.

SHUBHAM AGARWAL | 24-May-21
Reading Time: 3 minutes

After continuous swings in Nifty over the last 2 months, finally, it managed to close above 15,200 decisively last week. Nifty, during the past week, ranged from 14,760 to 15,200, ending the week with gains of around 3.5%.

On the OI (Open Interest) front, OI interest built up was nearly 1.4%, attributed to longs.

While Bank Nifty outperformed Nifty last week after an impeccable rally of more than 8%, closed at 34,850. Bank Nifty, over the week, gyrated between 32,360 and 34,850. On the OI front, OI built-up was nearly 30% attributed to longs.

Further diving into the Nifty data, upcoming monthly expiry Put writers are showing aggressions by building more position compared to call writers. Immediate support stands at 15,000 where nearly 47 lakh shares are outstanding. On the upper side, 15,500 stands at the vital resistance level.

Looking at the Bank Nifty's upcoming monthly expiry data. On the upper side, immediate resistance stands at 35,000 (11.55 lakh share) followed by 36,000 (10.5 lakh shares). Whereas, on the downside, 34,000 (8.7 lakh shares) is the immediate support level and 33,000 (10 lakh shares) is the next vital support level.

India VIX, fear gauge, has declined nearly 6% from 20.7 to 19.05 over the week. India VIX is trading at the lowest point since 18 Dec 2020. 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 increased from 1.112 to 1.407. Bank Nifty OIPCR over the week increased from 0.714 to 1.051 compared to last Friday. Overall data indicates more of Put writers over call writers in Nifty & Bank Nifty.

Moving further to the weekly contribution of sectors to Nifty. All the sectoral indices have contributed positively, except telecom. Private Bank has contributed nearly 260 points in the Nifty 550 points gains. Followed by NBFC's 65 points, Oil & gas and IT's 58 each. Whereas telecom contributed nearly 20 points negatively.

Looking at the top gainer & loser stocks of the week in the F&O segment. Indiabulls Housing topped by gaining over 18%, followed by IndusInd Bank 14%, Balkrishna Industries 13%. Whereas, Bharti Airtel has lost over 5.5%, NMDC 5.2%, PI Industries 5% over the week.

Conclusion: Considering the long built-up along with Put writers accumulation, it is better to approach the Bank Nifty with a low-risk strategy like Modified Call Butterfly .

Learn and read more about Open interest from Quantsapp classroom which has been curated for understanding of nse open interest data 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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