Nifty: Weekly Options Strategy: Go for bullish backspreads as Nifty looks consolidating

Strategy Position:

Short Nifty 4 Aug 2022 17000 Put at 59 and 4 Aug 2022 16700 Buy Put at 16, Total Premium Flow: 43; target: 1; Stop Loss: 64.5 (1 lot each)


Nifty extended its gains during monthly settlement and closed the week near the level of 17100. Aggressive short covering from FIIs and a rebound in global markets helped Nifty gain around 7% during the July series, its first positive series since March. While Midcap and Smallcap indices underperformed this week, we believe they could continue to dominate the headlines in the coming sessions as Nifty may move towards some consolidation after a sharp rise from lows of around 13% . From the options space, we are seeing significant put writing on the ATM strike with 17000 puts holding the maximum open interest. Call writers are getting stuck and they have also turned towards 17500 strike. However, we believe that Nifty may experience some strength in the near term and remains a buying opportunity with a downside correction towards 16800. Nifty is starting the August series with just 9 million shares which is one of the lowest stocks we have seen in the beginning. OI could be lower due to significant covering by FIIs in the settlement week. FIIs have become net buyers for the first time in two months. They have covered their shorts and have created new longs as well, which should keep the momentum going. While the India VIX has not risen much despite the recent weakness, the US VIX has also declined significantly and is at its lowest level since April. Hence markets are not expecting any major weakness and the focus may shift to mid-cap stocks where stock specific action can be seen in the coming sessions. Trader will get maximum profit if Nifty closes above 17000 level at the end of 04 Aug. Pay-Off Diagram: Agencies

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(The author is Vinod Nair, Head of Research at Geojit Financial Services.)

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