Since January, Nifty has been inching higher in an upward sloping parallel channel. It has reversed from the lower end of the channel while the FIIs too have made a comeback in the last trading session.

The FIIs’ return might hint that there can now be some buying interest from them as well as short covering in the derivatives markets.

In the previous weekly expiry, Nifty has seen a sharp short covering above the levels of 22,800, which is also a sort of double top. Now, above 22,800 levels, the directional uptrend has been confirmed for the near-term targets of 23,200 and thereafter 23,400.

On the lower side, 22,800 now remains a very strong support and until these levels are not broken, the short-term trend will continue to stay bullish.

The momentum indicator MACD has also turned bullish in the near term, which will be supportive of the current weekly up move.“On the Derivatives front, the Max pain is now seen at 22,900 levels, so that is one more support ahead of 22,800 levels. The PCR is trading at 1.07 levels, hence it is bullish. The maximum OI for both call and put is at 23,000 strike, hence above those levels there can be a swift up move of another 200 points. There has been a significant addition on the put side at the lower strikes as well which is well reflected in the PCR,” said Jay Thakkar, Vice President & Head of Derivatives and Quant Research, ICICI Securities.Highest outstanding OI30th May (weekly and monthly expiry)

Highest call OI: 23,000 (3,06,269), 23,100 (1,63,796), 23,200 (1,58,192)

Highest Put OI: 23.000 (3,27,1410), 22,900 (1,87,382), 22,800 (2,20,853)

The India VIX as well as Nifty IVs remain at elevated levels as there is a major event in upcoming days, so having a plain vanilla options strategy is not advisable. Hence, a bull call spread is recommended. With an expected short covering from the FIIs, the largecaps are likely to benefit the most, so that will help the Index to inch higher from the current levels, Thakkar added.

Bull Call Spread

A bull call spread consists of one long call with a lower strike price and one short call with a higher strike price. Both calls will have the same underlying stock and expiry. Such a spread is established for a net debit and the profits are earned when the underlying rises in price.

The profit in this strategy will be limited if the stock price rises above the strike price of the short call, and potential loss is limited if the stock price falls below the strike price of the long call.

Below is the payoff graph for strategy:

(Source: ICICI Securities)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

As Nifty’s weekly series expires today, it was marked with long additions with an increase in price of 3.66% and increase in open interest (OI) by 8.12% where 8.61 lakh shares were added in OI, increasing from 106.06 lakh to 114.67 lakh shares as on Wednesday.

The Nifty September series rollover stands at 12% with sentiment indicator Nifty Put Call Ratio (PCR) currently at 1.25, indicating a flat-to-positive movement for expiry.

As for the Bank Nifty which had a weekly expiry on Wednesday, the series witnessed short covering with an increase in price of 3.87% and decrease in OI by 16% where there was shedding of over 4 lakh shares in OI, decreasing from 25.17 lakh to 21.15 lakh shares. The Bank Nifty August series rollover stands at 17%.

Implied Volatility of Nifty ATM options for the current series is at 12.48%, while India Vix is at 11.63% both indicating a slightly higher Volatile movement on either side in expiry session compared to last weekly expiry, analyst Rajesh Palviya, Senior Vice President, Technical and Derivatives Research at Axis Securities said.

Palviya said that the Nifty Put options OI distribution shows that 20,000 has highest OI concentration followed by 19,900 and 19,800 which may act as support for today’s expiry and on the Call front 20,100 followed by 20,200 and 20,300 witnessed significant OI concentration and may act as resistance. There was significant Call writing seen at 20,200 and 20,150 indicating resistance, he added.

On the put side it was at 20,000 and 19,900 strike which could act as a support today with the options data suggesting an immediate trading range between 19,900 and 20,200 levels, the Axis Securities analyst said.

Meanwhile, Bank Nifty Put options OI distribution data shows that 45,500 has highest OI concentration followed by 45,000 and 44,500 which may act as support for current expiry and on the Call front 47,000 followed by 46,500 has witnessed significant OI concentration and may act as resistance, Palviya informed. Options data for this weekly expiry indicated an immediate trading range between 45,000 and 47,000 levels with 46,000 acting as pivotal levels, he said further.On the sectoral front this week, banking and telecom led the pack with gains of 3% and 2%, respectively followed by finance and power. Stocks which saw significant price action along with increase in OI include Tata Motors, Larsen & Toubro,Titan and Bharti Airtel.

Options Strategy: Nifty, Bank Nifty

Analyst Rajesh Palviya, Senior Vice President, Technical and Derivatives Research at Axis Securities recommended traders in Nifty to initiate a moderately bullish strategy with reduced premium outflow and lower breakeven point called ‘Bull Call Spread’ of September 21 weekly Expiry where trader can buy one lot of 20,100 call strike at Rs 121 and simultaneously sell one lot of 20,300 call strike at 43, so that net outflow or maximum loss is restricted to up to Rs 3,900.

“He said that if NIFTY closes above 20,178 on expiry the strategy will start making profit, however as the risk is limited so will be the profit. The maximum gains will be restricted up to Rs 6,100 only because the gains of long 20,100 strike call will be offset by the sold 20,300 strike call if Nifty closes above 20,300 on expiry,” Palviya said.

As for Bank Nifty, traders can initiate a similar strategy called the ‘Bull Call Spread’ of September 20 weekly expiry where trader will buy one lot of 46,000 call strike at Rs 263 and simultaneously sell one lot of Rs 46,500 call strike at Rs 98, so that net outflow or maximum loss is restricted to up to Rs 2,475.

“If Bank Nifty on expiry day closes above 46,165 the strategy will start making profit. However, as the risk is limited the profit potential is also limited. The maximum gains will be restricted up to Rs 5,025 only, because the gains of a long 46,000 strike call will be offset by the sold 46,500 strike call if Bank Nifty closes above 46,500 on expiry,” Palviya said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)