Buying in Nifty, above 17200, Bank Nifty may trade positively; Use the short straddle to expire on 4th August F&O
On the weekly chart, the NSE Nifty 50 Index has formed a long bullish candle forming higher high-lows than the previous week. The chart pattern suggests that if Nifty crosses the level of 17200 and sustains then there will be buying which will take the index towards the level of 17400-17700. However if the index breaks below the level of 17000 then it will witness a selloff which will take the index towards 16800-16600. For the week, we expect Nifty to trade in the range of 17700-16600 with a positive bias. Daily & Weekly Strength Indicator RSI is trending up and quoted above its reference line which shows positive bias
Bank Nifty Outlook
Bank Nifty started the week on a flat note and saw profit-booking in the early half, however, buying support at lower levels pulled the index to close on a strong note. Bank Nifty closed at 37491 with a gain of 752 points on a weekly basis. The index has formed a major bullish candle on the weekly chart and closed above the previous week’s highs indicating a positive bias.
The chart pattern shows that if Bank Nifty crosses and sustains the level of 37800 then there will be buying which will take the index towards 38000-38800 level. However, if the index breaks below the level of 37000 then it will witness a selloff which will take the index to the level of 36500-36000. For the week, we expect Bank Nifty to trade in the range of 38800-36200 with a positive bias. Daily and Weekly Strength Indicator RSI is trending up and quoted above its reference line which shows positive bias.
Sectors and stocks to watch this week
We expect sectors such as capital goods, automobiles, banking and financials, FMCG, agrochemicals and cement to pick up. Stocks like Cummins India, Siemens, Eicher Motors, Maruti Suzuki India, IndusInd Bank, HDFC Bank, Dabur India, Hindustan Unilever Limited (HUL), GNFC, Chambal and UltraTech Cement may show a rise in the coming days.
NSE Nifty 50 Trading Strategy for this week
The strategy we are suggesting is to short straddle, which is for weekly expiry scheduled on 4th August 2022, amid hopes of some consolidation in Nifty after strong momentum in the last week. This strategy involves selling 17,200 calls and 17,200 puts, each carrying a premium of 110 and 136 respectively, giving a total premium inflow of Rs 12,300 (246 points). Since this is a credit spread, from profit point of view this strategy can yield maximum profit if Nifty trades and closes the range of BEP; Whereas the loss can be unlimited if Nifty breaks the upper breakeven level of 17,446 or the lower breakeven level of 16,954 and remains on either side on the day of expiry. It is advisable to maintain a combined premium (i.e. Premium of Call Option + Put Option Add together) stop loss of 380-400 points to avoid unlimited losses if Nifty takes a strong move in either direction or traders According to the risk taking ability can even hold till expiry.
(Rajesh Palvia, Vice President – Research (Head Technical & Derivatives), Axis Securities. Views expressed are those of the author.)