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For Bank Nifty, deploy Put Butterfly spread strategy: Shubham Agarwal

With underperformance continuing along with sector rotation, it is prudent to approach the market with a low-risk strategy like Modified Put Butterfly Spread.

SHUBHAM AGARWAL | 15-Mar-21
Reading Time: 3 minutes

The Nifty had a hard time sustaining above the 15,000-mark in the week gone by. It was slowly climbing over the 15000-mark but the pullback on the last day deteriorated the momentum. During the week, the Nifty had a range of 14,850-15,330, though the index ended the week with a marginal gain of 0.6 percent. Marginal Open Interest (OI) shedding 1.2 percent attributed to short covering.

The Bank Nifty saw the selling pressure from the high level. Overall, it gyrated in the 35100-36500 range and gained 0.6 percent. However, Short created on March 12 outpaced the long of the week, leading to selling pressure.

For the Nifty, weekly options data reflects a broad range of Call addition 15200-16000 strike. Multiple resistance can be seen. However, the resistance zone placed between 15,200 and 15,300 strike. Put has remained on the lighter side in sterm of addition as compared to calls. Highest Put OI stands on 15,000 level followed by 14,500.

Same as the Nifty, the Bank Nifty's upcoming weekly options data reflects a wide range of addition in Open Interest for the Calls as compared to Puts. Multiple resistance stands on the upper level. Data indicates the immediate resistance at 36,000. However, 35,000 stands as the vital support level, followed by 34,500.

Indian VIX, the fear gauge, declined from 25.56 to 21.62 compared to last Friday. However, spike in VIX on March 12 gave causations to market participants. Any sustained uptick in India VIX can be detrimental to the up trend. The level of 25.5 needs to watched.

Looking at the sentimental indicator, Nifty OIPCR declined slightly from 1.12 to 1.02 for the week, while that for Bank Nifty remained almost the same, closing at 0.68 compared to the previous week's 0.69. Overall, data indicates higher Call writers versus Put writing over the week for the Nifty and Bank Nifty.

Moving further to the weekly contribution of sectors to the Nifty, all sectors except IT (95 points) & capital goods (15 points) contributed negatively, marginal support was seen from power & fertilizer. Oil (-74) and auto (-25) are the biggest drags.

Among the top gainers and losers for the FnO segment, Mindtree topped by gaining around 8.6 percent followed by the PFC (7.2 percent)and Coforge (6 percent). Mother Sumi bleed the most, losing around 5.2% followed by the TVS Motor & Bank Of Baroda (-5% each).

Conclusion: Considering the re-emergence of short in the Bank Nifty, with underperformance continuing along with sector rotation, it is prudent to approach the market with low-risk strategy like Modified Put Butterfly Spread in the Bank Nifty.

Learn and read more about financial market from Quantsapp classroom which has been curated for understanding of volatility skew 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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