Nifty Update: Nifty F&O Strategy: Expect consolidation with support near 17,500; go for short straddle, says ICICI Direct
Sell 27th April Nifty 17900 Call at 121-125 & Sell 27th April 17900 Put at 136-140, Target: 100, Stoploss: 360 Time Frame: till expiry.
Rationale
The Nifty extended its gains by another 1% in a truncated last week and tested our targets of 17800, driven largely by short covering. Once again, financial stocks were major gainers of the week, along with midcap and small caps, which continued their momentum in the new financial year. Going ahead, we expect the Nifty to consolidate with support near 17500 amid results from heavyweights.
From a data perspective, the current open interest in the Nifty is nearly at a one-year low as short closure continued during the series. FIIs’ net shorts have declined to just 40,000 contracts from 1.95 lakh contracts seen in mid-March. Hence, we believe that a fresh accumulation of positions may provide further cues for directional movement.
Also, despite the Nifty trading above 17800, Call writing was relatively higher than Puts suggesting expectations of limited upsides. The highest Call base is placed at 18000 strikes. Hence, in case the short-covering trend continues, a move towards these levels cannot be ruled out. However, we believe the Nifty will exhibit a range-bound movement in the coming sessions
The volatility index (India VIX) remained low near 12 levels throughout the week, with US VIX, which has moved towards 19 levels. Hence, an uptick in volatility cannot be ruled out, which may result in marginal profit booking in coming sessions
As we are keeping our view range bound, we advise traders to go for a short straddle. It is a 2 leg option strategy and consists of selling one ATM strike of the Call option and Put option.
Trade will be in profit if the expiry comes between the range of 17640 to 18160 levels. However, traders should be cautious once the given range breaks
