Traders wary after 70% market rally from March lows
The Nifty ended up 67.40 points, or 0.5%, at 12,926.45 on Monday after scaling an all-time high of 12,968.85 during the day. The Sensex notched an all-time high of 44,271.15 before ending up 194.90 points, or 0.4%, at 44,077.15.
Palviya said movement of approximately more than 150 points on the upside till current expiry will be advantageous as the current week call option will expire in profit while the next week put option will suffer some price correction.
Mumbai: The uncertainty over the market outlook after a 70% rally in the benchmark indices from their March lows has analysts recommending a Nifty options strategy that bets on moves on either sides. Analysts are suggesting a calendar spread strategy, which involves simultaneous buying or selling call or put options for the same stock or index at the same strike but of different expiry dates. This is a limited risk trade as there are chances of making money from either direction.
“We would suggest a calendar spread with the same strike but different option type. We are suggesting to buy one lot of 13,000 call of November 26 expiry at 56 and simultaneously buying one lot of 13,000 put of December 3 expiry at 181 totaling 237 points for break even. Since both are long options the maximum premium outflow or loss is ₹17,775," said Rajesh Palviya, head-technicals and derivatives at Axis Securities. He is betting on the index to correct before December 3 to make profit on a calendar spread strategy.
The Nifty ended up 67.40 points, or 0.5%, at 12,926.45 on Monday after scaling an all-time high of 12,968.85 during the day. The Sensex notched an all-time high of 44,271.15 before ending up 194.90 points, or 0.4%, at 44,077.15.
Palviya said movement of approximately more than 150 points on the upside till current expiry will be advantageous as the current week call option will expire in profit while the next week put option will suffer some price correction.
"If the Nifty is unable to move up and closes below 13,000 levels then the long call option of the current week will be worthless. However next week's put option will have substantial gains to overcome the losses of the current week call," said Palviya. "The momentum in the markets is very strong which is led by FPI flows but at the current juncture we will face resistance on upside as the markets are over-heated as over 95% of the BSE 200 members and over 86% of the Nifty constituents are trading above their 200-day moving averages which means it is extremely overbought. The Nifty index will find it difficult to sustain above 13,000 level and the banking Index will cool off from 30,000," said Abhilash Pagaria, senior manager, Edelweiss Alternative Research.
