Nifty: Weekly Options Strategy: Further broader consolidation likely; Go for Short Nifty Iron Fly

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By Raj Deepak Singh, Head – F&O, Currency, and Commodity Research, ICICI Direct


Strategy Position:

small nifty 30 june 2022 15,700 call at 160 and short 30 june 2022 15,700 at 140, 30 june 2022 call 16000 at 43 and 30 june 2022 15,300 at 38 (1 lot each)

Logic:

The Nifty recovered around 2% last week in line with global indices after a sharp sell-off in the past week. However, the broader markets have underperformed relatively as they failed to see a major recovery amid unabated foreign institutional investors Sell ​​it The auto and technology space gained gains, while metals and energy stocks are facing pressure due to global weakness. Considering the quarter-end settlement, we expect volatility to remain high and short covering move can be expected only if Nifty remains above 15,700 level.

Despite significant volatility, call open interest remained largely unchanged at the 15,500 strike and previous weekly settlements have not diverged much from those levels. For the coming week, similar movements are visible at 15,700 call strike. Hence, a round of covering is only expected above these levels. While the put base is quite high at the 15,500 strike, which should act as immediate support, but below these levels, a return to the immediate low of 15,200 is likely.

From a data perspective, FII net shorts have come down significantly last week to just 1 lakh contracts. However, net shorts are still trading higher which suggests limited upsides. On the other hand, net long stock in stock futures remained higher indicating specific accumulation. The rollover of positions in the July series is expected to increase stock specific volatility for settlement.

a small iron fly Directionless strategy. This strategy is bearish on volatility, so we are using this strategy on expectations of broad consolidation. Basically, it is a 4-leg options strategy that involves selling ATM Straddle and buy OTM Press.

Keeping the 15,500 safe guard down and 15,950 up, we think traders can short straddle 15,700 call and straddle 15,400 put and 16000 call.

Traders will be in profit if Nifty stays up or closes between the given security levels. The maximum profit for the strategy would be 11,040 while the maximum loss would be 8,955.

Nifty Weekly 24 JuneETMarkets.com

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