nifty: Weekly options strategy: Nifty may turn rangebound, opt for Short Straddle

Rationale

The Nifty recovered one other 3% final week with broader market participation forward of the quarterly earnings season. As anticipated, Nifty didn’t transfer beneath its Put base of 15,600 and even examined 16,200 ranges. Banking and FMCG shares led the restoration, and we anticipate the present restoration to proceed in direction of 16,500 ranges within the coming classes.

From information perspective, each Name and Put open curiosity for the approaching weekly settlement is seen at ATM 16,200 strike, suggesting some comfort. Nonetheless, with the latest up transfer, Name writers appear to be caught, and closure amongst them will proceed to supply assist. Therefore important declines is probably not seen within the close to time period.

Additionally, FIIs’ web shorts have declined significantly final week, and the web shorts in index futures have declined to close 71,000 contracts from over 1 lakh contracts seen final week, suggesting ongoing brief masking. On the identical time, web longs in inventory futures proceed to extend, suggesting closure of shorts forward of outcomes.

We really feel within the coming days, 500 level of vary sure classes can’t be dominated out after the consecutive beneficial properties. We really feel merchants can go for a brief straddle of ATM 16,200 strike the place revenue shall be made inside the vary of 15,900 to 16,500. Nonetheless, one must be cautious on each side additionally as technique will begin making a loss if the Nifty strikes above or beneath the given vary.

Merchants can be in most revenue if Nifty closed close to 16,200 ranges on 14th July expiry.

Pay-Off Diagram:

(Raj Deepak Singh is the Analyst – F&O, Forex, and Commodity at ICICIdirect)