Nifty likely to trade in a range; deploy Call Butterfly Spread this week

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undefined Nifty and Bank Nifty snapped their last 3-week winning streak and closed with marginal losses of 0.13 percent and 0.67 percent, respectively, for the week ended June 7.

In the week gone by, selling pressure was seen in NBFC, engineering & capital goods and PSU banking stocks.

DHFL and Reliance Capital were the major losers in the NBFC space as they were both down by 23 percent and 25 percent, respectively.

Among the PSU banking stocks, Bank of Baroda and Allahabad Bank were the top losers, down by 8 percent each.

The engineering and capital goods sector was dragged down by L&T, BHEL and EIL, down 2-2.5 percent.

As far as index futures are concerned, Nifty and Bank Nifty added longs at the beginning of the week and managed to hold on to it till the weekend.

Bank Nifty options data for the upcoming weekly expiry shows 31,500 could act as strong support with OI addition of ~6.65 lakh while highest PE accumulation is seen at 30,500, which can act as vital support.

Nifty options data for the weekly expiry shows highest Put OI, which is placed at 11,800, can act as vital support while on the upside highest Call accumulation is at 12,000, which can act as immediate resistance.

The Nifty PCR, open interest-wise, stands at 1.32, keeping the room open on the upside.

Nifty futures remained more or less in a long-long unwinding cycle throughout the week, but considering that there could be some hurdles at 12,000, a moderately bullish strategy Call Butterfly Spread is suggested.

Call Butterfly Spread is bullish to a rangebound strategy that offers decent reward to risk at a low cost. In this strategy, we need to buy 1 ATM Call, Sell 2 OTM Calls near the target level and Buy 1 further OTM Call to hedge the risk.

The maximum profit in this strategy is at Call written strike. As theta decay is fast in weekly options, it is idle for deploying Call Butterfly Spread.

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