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Time to hedge your positions, deploy Bear Put Spread on Nifty this week

Bear Put spread is a moderately bearish strategy. The strategy is built by buying a Put close to the current market price of the underlying and selling the same expiry Put but of a strike lower than the Put bought

SHUBHAM AGARWAL | 11-Nov-21
Reading Time: 3 minutes

undefinedThe Nifty failed to hold onto 12,000 and closed last week flat but above 11,900 levels. The Bank Nifty had a better last week and ended over a percent higher.

Open interest (OI) activity for both indices was on the positive side, though with more longs than shorts. The Bank Nifty added over 70 percent OI last week.

Stock futures were not so fortunate, with 70 out of the 148 participating stocks adding shorts. The stocks that did see long interest were also from the pack that has seen short covering recently.

Most stocks reaching the list of longs last week were the result of bargain hunting attempts in beaten-down names.

Sentimentally, Open Interest Put Call Ratio (OIPCR) held on last week. But the weakness on November 8 pushed the OIPCR down to 1.26, down around 20 bps week-on-week. On the other hand, India VIX was awfully quiet for the week-ended November 8, hovering below 16.

Among individual Nifty strikes, 12,000 remains the undivided consensus for the upside hurdle. What’s scarier though is consensus despite the proximity to that level. On the lower side, congestion remains firm in the 11,700-11,500 zone.

For Bank Nifty, this time the options composition seems better off with a better OIPCR . The congestion on the upside at 31,000 levels is relatively lower than Put supports by lower strike writers at 30,000.

The rise in Nifty and a drop in OI on November 8, which pushed the index below 12,000, is concerning. Options OI remains tightly bound, with the 12,000 strike Calls despite the proximity signifying a hurdle.

On the lower side, congestion around the 11,700-11,500 range could throttle the pullback. The dominance of shorts in many stock futures and last week's reaction to 12,000 calls for a hedge in the index, hence a Bear Put Spread on the Nifty is advised

Bear Put spread is a moderately bearish strategy . The strategy is built by buying a Put close to the current market price of the underlying and selling the same expiry Put but of a strike lower than the Put bought.

The sold Put strike would limit the profit but fund the put buying. Profits are limited to the difference between strikes minus the net premium paid.

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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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