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Last Updated : Apr 22, 2019 10:26 AM IST | Source:

'Deploy Call Butterfly Spread to benefit from sideways movement in Nifty'

Call Butterfly Spread is bullish to range bound strategy that offers decent reward to risk with low cost

Shubham Agarwal

After trading sideways last week, Nifty managed to stay afloat despite profit taking at higher levels to continue with its bull run. It touched a lifetime high of 11,859.

The Bank Nifty followed Nifty with a modest rise of 0.6 percent. However, due to profit booking, Nifty ended this week below its lifetime high at 11,766(Future). It closed 34 points lower at 11,752 on April 18.

Auto, cement, and oil & gas sector were the top gainers for the week. Auto stocks like Tata Motors, Hero MotoCorp gained 3-5 percent while Oil & gas companies like Reliance Industries and HPCL rose about 2 percent each.


In the cement sector, ACC and Shree Cement gained over 2 percent, while PSU banks and NBFC were the major losers this week.

IT stocks were in focus due to quarterly results of IT heavyweights Infosys, TCS, and Wipro. TCS was the major gainer in the IT sector with gains of about 6 percent and Infosys was the major loser as it slipped 4 percent.

Over the week midcap stocks like PC Jeweller and Infibeam were the top gainers. Among NBFC stocks, Reliance Capital was the biggest loser with an 18 percent drop in prices with a strong OI rise of 61 percent. DHFL also lost around 6 percent.

Sharp movement was seen in airline stocks. Jet Airways was the biggest loser as it fell about 38 percent on a weekly basis while IndiGo emerged as the biggest gainer gaining by about 6 percent.

Future data of indices depicts long unwinding in Bank Nifty. Options data shows a range of 30,000- 30,500 as OI accumulation is seen in 30,500CE and 30,000PE.

Nifty Future data depicts a long buildup over the week. For Nifty option, 11,500 and 11,800 are likely to act as immediate support and resistance for the index as both 11,800CE and 11,500PE have around 2 million OI accumulation. The Nifty PCR open interest stands at 1.54, keeping a room open for the upside.

With uncertainty prevailing over election outcome and upcoming results of heavyweight companies, Nifty May expiry Vol saw an uptick resulting in a spike in India VIX by 170 bps to 22.73.

With Nifty unable to sustain around its lifetime high and heavy Put writing was seen in 11,600PE, we expect Nifty to be in a narrow range or mildly bullish. Thus a mildly bullish low-risk strategy Call Butterfly Spread is recommended.

Call Butterfly Spread is bullish to range bound strategy that offers a decent reward to risk at low cost. In this strategy, we need to buy 1 ATM Call, sell 2 OTM Calls near the target and buy 1 further OTM call to hedge the risk. Maximum profit in this strategy is at Call written strike. As theta decay is fast in weekly options, it is ideal for deploying Call Butterfly Spread.




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

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

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First Published on Apr 22, 2019 10:26 am
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