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Deploy Short Iron Butterfly Strategy in Nifty: Shubham Agarwal

Considering the pause in momentum along with Option band getting tighter, the upcoming week can be approached with a hedged option strategy, short Iron Butterfly in Nifty.

SHUBHAM AGARWAL | 23-Aug-21
Reading Time: 3 minutes

Shubham Agarwal

Nifty lost its bullish momentum after rallying more than 700 points since the start of this month. It closed around 16420 with a marginal loss of 0.60% last week.

The index made all-time highs of 16,688.90, gyrated in the range of 16,350-16,688.90, and witnessed long unwinding on OI (Open Interest) front in the week gone by.

Bank Nifty on the other failed to sustain at upper levels and slipped back into the consolidation range. Bank Nifty traded in the broader range of 36,400-34,900. Overall, Bank Nifty ended the week with a loss of more than 3% with a fall of approximately 1100 points last week.

Further diving into the Nifty upcoming monthly expiry, Call writers are showing aggression by building more positions compared to put writers. Nifty vital resistance stands at the 16500 levels where nearly 52L in open interest is highest followed by 16600 levels with 44L shares.

On the lower side, the immediate and vital support level is at 16400 where nearly 44L shares followed 16000 with the addition of 44L shares in open interest .

Looking at the Bank Nifty's upcoming monthly expiry data. On the upper side, immediate resistance stands at 36000 (20L share) followed by 37000 (15L shares). Whereas, on the downside, 35000 (13L shares) stand at the immediate support level and are followed by 34500 (10L shares) as the vital support level.

India VIX, fear gauge, increase nearly 7.50% from 12.99 to 13.96 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 1.731 to 1.231. Bank Nifty OIPCR over the week decreased from 1.014 to 0.694 compared to last Friday. Overall data indicates more of put writers over call writers in Nifty and Bank Nifty.

Moving further to the weekly contribution of sectors to Nifty. The sectoral contribution was mixed last week. FMCG, IT, and NBFC have positively contributed nearly 104, 96, and 60 points in the Nifty. While on the other hand PVT Bank, Metals and Auto have contributed 79, 42, and 22 points negatively in Nifty.

Looking towards the top gainer & loser stocks of the week in the F&O segment. Apollo Hospital topped by gaining over 16.50%, followed by Mindree 14.40%, HUL 8.30%. Whereas, Vedanta has lost over -19.20%, SAIL -13.60%, NALCO -13.2% over the week.

Considering the pause in momentum along with unwinding in future open interest with Option band getting tighter, the upcoming week can be approached with a range-bound option strategy Iron 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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