Welcome back readers, it’s good to be back and writing again after a hiatus. Stay tuned for daily updates on our blog from now on.
So Nifty, after a month-long consolidation, ended up breaking on the downside, post the report published by Hindenburg research, but let’s just say that it was a trigger for banking index charts that hardly showed any strength on the upside, which basically led to the test of 200 EMA on the daily timeframe, which has historically acted as a strong support level. Also, we see that the correction has happened prior to the Union Budget, which is slated for presentation today. Similarly, Banknifty also has formed such a structure, with a good bounce from 200 EMA support levels.
Currently, Nifty is opening about 150 points or 0.8% higher than yesterday’s close, but one thing we can expect is some gap filling on the downside, which would be better in the longer term, as filled gaps lead to cleaner trending moves on either side. Opening levels are basically at the previous bottom, which was around 17770 levels, which would act as an immediate resistance level, but once crossed would help to scale higher towards 18000-18200. Being the budget day, volatility is expected to be much higher, but post the FM’s speech, we would end up seeing a volatility crush which would result in drop in premiums of options, on both nifty and banknifty.
In such scenarios, option sellers can benefit well by creating non directional strategies keeping day’s high-low levels along with daily chart support and resistance levels as key trend change points. Going with Short Straddles and Short Strangles on both indices, especially banknifty would prove beneficial as one can benefit from the premium drop post event (in case of directional moves, to limit your losses, please place a SL at around 40%-50% of your entry price on premium levels. For those with a higher risk appetite, and directional traders, a better rewarding strategy would be to execute a straddle at the price you expect the index to go to – say for example, banknifty is at 41100 currently, and if it looks like 41500 is on the cards, go ahead and createa short straddle at 41500, which will lead to higher delta decay on the puts and minor theta decay on the calls, overall working out better than an ATM straddle.
If history is any guide, budget day is usually highly volatile with wild swings in both the directions. Have a good trading day, and may the force be with you!
Disclaimer: this post is for educational purposes only, we are not SEBI registered analysts. Equity Investments are subject to 100% market risk, please consult your financial advisor before investing.