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Worried about volatility in market? Deploy Long Strangle in Nifty for making quick profit

Historically, India VIX holds negative correlation with the market. The upper band of VIX is placed at 21.

SHUBHAM AGARWAL | 11-Mar-18
Reading Time: 3 minutes

undefinedThe Nifty continues its southward journey as it lost 2.2 percent in the last week and closed a tad higher above 10,200. All the major sectoral indices closed in the red with fall over 2.5 percent with major being Metals, Banks, Pharma etc. The Nifty futures too saw the fresh short position at higher levels.

Put Call RatioOpen Interest wise for Nifty March series stands at 0.83 indicating Call writers aggressive than Put writers. Option band based on Open Interest is placed at 10,000 and 10,500.

10000 Put OI of around 50 lakh and 10500 Call OI of around 55 lakh shares. Calls writers continued to shift their base lower. Fall in PCR supports the bearish undertone prevailing in the market.

India VIX (Volatility Index), the barometer of riskiness yet again saw an upsurge of 3.5 percent to 14.5 level indicating traders are again feeling skeptical and are ready to buy protection at a relatively higher premium.

Historically, India VIX holds negative correlation with the market. The upper band of VIX is placed at 21.

With the outburst of negative sentiments in the markets along with spurt in volatility, it would be idle to trade in Long Strangle in Nifty. Under this strategy, we need to buy 1 lot of 10100 PE and Buy 1 lot of 10300 CE.

Long Strangle is an either-way (volatility-based) strategy that aims to make money for a stock Index soaring up or plummeting down. Outlook is directional neutral as we are looking forward for explosive move in either direction.

Maximum profit on this strategy is uncapped while the loss is capped maximum to premium outflow. A major challenge in long Strangle is time decay. However as we are 3 weeks away from expiry, its impact is limited.

To Know More about - nse oi data from Quantsapp classroom which has been curated for understanding of options and nse open interest 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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