Go for a short strangle option on Nifty

By Anand James
Chief market strategist, Geojit Financial Services

Where are We?
The symmetrical triangle breakout is guiding the bulls now, which is the reason the three-day long selling found buying as soon as a 23 per cent retracement was completed by the start of last week. The divergence between the performance of mid/small cap stocks and large caps continues, with heavyweights like Reliance, HUL, Infy and TCS keeping the Nifty afloat, while the rest of the market continued to see deep cuts.

What is in Store?
Nifty having registered a clean break from a 300 point trading range that has persisted for the last 11 weeks, may settle into a new trading range soon, possibly in the 11350-750 region.


Directional moving indicators are weak though, lowering the potential for explosive upsides. Heavy interest for put options in the 10800 strike suggests that downsides will be limited.

What could Investors Do?
Over the past week, FMCG was seen giving away its outperformance tag, but those who have diversified their portfolio with this sector as a defensive ploy would do well to maintain exposure atleast until we have more earnings visibility. The energy sector has shown the most improvement last week and the activity level should continue, providing trading opportunities. Realty, media, and metals have been clear laggards, and can be avoided. State-owned banks are showing signs of improvement, and holds a fair potential for adding muscle to shortterm rallies in Bank Nifty. A short strangle option strategy may be employed for Nifty July series, given the small range expectations, but a bull spread option strategy can be employed in Nifty August series, given the series of continuation patterns seen in weekly as well as hourly charts.