Nifty near all-time high, deploy Long Call Butterfly strategy: Shubham Agarwal

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undefinedLast week was a good one for Nifty . After a nervous start, Nifty turned around and had spectacular last three sessions of the week. This meant Nifty revered all the losses of the previous week along with this week, and it once again crossed the 12,000-mark. This is the highest ever weekly close for Nifty.

Bank Nifty , too, had a similar move closing around 32,000. As far as index futures are concerned, after a long time, Nifty future had sizeable long carry forward. For this week, Nifty futures added almost 10 percent in open interest. In the case of Bank Nifty though, the index lost around 10 percent in OI despite the rise. While this lack of commitment is strange yet does not threaten the current Long-Long Unwinding structure of the index future.

As far as stock futures are concerned, after many weeks this time, the long interest addition resumed as over 40 percent stocks added longs for the week. On the other hand, after an overflow of shorts a week before, we did see little over 30 percent stocks covering shorts as well.

Notable longs were in private banks led by ICICI Bank and metals led by Vedanta and Hindalco. Similar bargain hunting was also seen in Larsen & Toubro and BHEL from capital goods, while after series of short cycles some long interest was seen in auto too led by Mahindra & Mahindra and TVS Motors.

Sentimentally, OIPCR did mimic the index move and saw a dip close to 1.2 mid-week but the strong come back in the index led the OIPCR also to shut shop for the week at 1.63 higher by almost 40 percent. India VIX remains on the lower end, while this is threatening but in its current state is a positive reading relatively. As long as we hold 12,000, this could actually be overlooked and longs could be initiated.

For Nifty OIPCR remains visibly strong, while the OI structures too remain strong as most of the boost to the OIPCR is coming out of the Puts written in and around the level of 12,000. While on the upside we do not have any meaningful hurdle. Clusters similar to Nifty can be seen in Bank Nifty around the current level of 32,000. But the only dissimilarity here is that the Puts in the monthly series are rather distant at 31,000.

Willingness to carry forward longs in the next week despite all the gains should be viewed positively but considering the VIX position and the fact that we are around all-time high, a moderately bullish strategy of ' Long Call Butterfly ' is advised.

Modified Call Butterfly is a 4-legged strategy where 1 lot of Call close to current underlying level is bought against that 2 lots of higher strike calls are sold and 1 more lot of Call is bought but closer to the call sold strike. This keeps the lower but constant profits in case of an upward breakout. This is a fair risk-averse and a universal strategy.

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