'Bank Nifty to trade in a range this week; deploy Call Butterfly Spread'

Due to global trade war concerns and rising crude oil prices, indices remained volatile throughout the last week. Nifty ended the week on a negative note as it was down by 0.84 percent while Bank Nifty was flat, up by a mere 0.05 percent.

Over the week, selling pressure was seen in all sectors. NBFC, auto and pharma stocks were the biggest losers. DHFL was the top loser in the NBFC space and was down by 11 percent followed by Chola Finance and Reliance Capital.

On a week-on-week basis, a mix of long and short buildup was seen in Nifty as it was down 0.84 percent and the open interest (OI) was up 6.77 percent. Meanwhile, long buildup was seen in Bank Nifty as the price was up 0.05 percent and OI rose 14.64 percent in the same period.

Nifty options for monthly expiry suggests 11,700 could act as strong support with highest Put OI at 11,700 strikes. On the upside, aggressive Call writing was seen at 12,000 strike, which can act as immediate resistance.

Bank Nifty options data suggests an immediate trading range of 30,500 and 31,500 can be seen as the maximum Put open interest is placed at 30,500 strikes followed by 30,000 strikes. Meanwhile, significant Call writing of around 8.2 lakh can be seen at 31,000 strikes followed by 31,500 strikes.

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Shubham Agarwal

CEO and Head of Research|Quantsapp Private Limited

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Nifty PCR, open interest wise, stands at 1.34 and Bank Nifty PCR stands at 1.012 keeping room open on the upside.

The highest Put OI is placed at 30,500, which is most likely to act as an important support for the index, the upside remains capped at 31,000 due to aggressive Call writing of around ~8.2 lakh.

Bank Nifty could trade in the range of 30,500-31,000 in the upcoming expiry, so a bullish-to-rangebound strategy called Call Butterfly Spread is recommended.

Call Butterfly Spread offers decent risk-to-reward ratio with low cost.

In this strategy, we need to buy 1 ATM Call, Sell 2 OTM Calls near target level and Buy 1 further OTM call to hedge the risk.

The maximum profit in this strategy is at Call written strike. As theta decay is fast in weekly options, it is idle for deploying Call Butterfly Spread.

The author is CEO & Head of Research at Quantsapp Private Limited.

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