Nifty options strategy: What should traders do on weekly expiry?

As Indian headline indices fell for the second session in a row on Wednesday, market experts recommend investors and traders to remain cautious. Amid ongoing weakness and likely volatility, Nifty options traders are advised to adopt a market-neutral strategy to tide over choppy waters, one expert tells ETMarkets.

"We expect the market to remain cautious in the near term amid major events, while profit booking in the broader market is likely to continue," Siddhartha Khemka, Head-Retail Research at Motilal Oswal Financial Services said. While the Fed decision weighs on the market, policy decisions from the Bank of England on Thursday and Bank of Japan on Friday are also likely to influence movement, he opined.

Nifty dipping below its previous swing high on the daily chart is indicative of a decline in bullish sentiments and the index experienced a correction following a period of consolidation, Rupak De, Senior Technical analyst at LKP Securities said adding that this could be considered as an early indication of a bearish reversal.


He expects Nifty to decline towards the 19,700-19,630 range and called for selling on rallies as long as the index remained below the 20,000 mark.

Analyst Rajesh Palviya, Senior Vice President, Technical and Derivatives Research at Axis Securities said that the implied volatility of Nifty ATM (at the money) options for the current series are at 12.40% while India VIX is at 11.13% which suggests a slightly higher volatility on either side in expiry session compared to the last weekly expiry.

Options Strategy: Nifty, Bank Nifty
In the current series, we witnessed a long addition in Nifty with an increase in price of 2.87% and an increase in OI by 7.35% where nearly 7.80 lakh shares were added in OI, increasing from 10.60 million to 11.38 million shares as of Wednesday. Nifty September series rollover stands at 16% with sentiment indicator Nifty Put Call Ratio (PCR) at 0.80, indicating a negative movement for expiry.

Bank Nifty, which had a weekly expiry on Wednesday, has seen short covering with an increase in the price of 2.86% and a decrease in OI by 24% where there was a shedding of 5.93 lakh shares in OI. Meanwhile, Bank Nifty September series rollover stands at 31%.

Palviya of Axis Securities recommends traders to initiate a market-neutral short strangle strategy for monthly expiry on September 28, 2023.

Nifty Put options OI distribution shows that 19,500 has the highest OI concentration followed by 19,900 and 20,000 which may act as support for today's expiry and on the Call front 20,000 followed by 20,200 and 20,500 witnessed significant OI concentration and may act as resistance, Plaviya said. There was significant Call writing seen at 20,000 and 20,100, indicating resistance and on the put side it was at 19,900 and 19,700 strike which may act as support, he added, placing the immediate trading range between 19,700 and 20,200 levels with 20,000 acting as a pivotal level.

"This strategy involves selling one lot of 19,950 'Put' option and 20,000 'Call' option having premium of Rs 107 and Rs 103, respectively making a total premium inflow of Rs 10,500/- (210 points). As it’s a credit spread, from a profit perspective this strategy can generate theoretically unlimited losses while the profits are restricted to total premium paid if Nifty closes between 19,950 and 20,000 on expiry. However, if Nifty closes above the upper breakeven level of 20,210 or the lower breakeven level of 19,740 on expiry and sustains on either side, then the loss can be unlimited. It’s advisable to maintain a combined premium (i.e add premium of call + put together) stop loss of 320-350 points," he explained.

As for Bank Nifty, his strategy is again a short strangle for monthly expiry on September 28, 2023. This strategy involves selling one lot each of 45,600 'Call' and 45,500 'Put' having premiums of Rs 307 and Rs 295, respectively, making a total premium inflow of Rs 9,030/- (600 points).

"As it’s a credit spread, from a profit perspective this strategy has the potential of unlimited loss, while the profits are restricted to total premium received if Bank Nifty closes between 45,600 and 45,500 on expiry. However, if Bank Nifty closes above the upper breakeven level of 46,202 or the lower breakeven level of 44,898 on expiry and sustains on either side then the loss can be unlimited," the Axis Securities analyst said.

He recommended traders to maintain a combined premium i.e add premium of call + put together with a stop loss of 900-950 points so that if Bank Nifty made a strong move then losses can be curtailed by following the above-mentioned stop loss.

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