Moneycontrol PRO
Upcoming Webinar:Innovate Your Future at India Inc. on the Move on August 26 and 27, 2021 at 10am, with Rockwell Automation

Deploy modified Put Butterfly strategy in Bank Nifty: Shubham Agarwal

Amid loss of momentum, Bank Nifty lost on participation, few constituents added shorts this week, hence a hedge via Modified Put Butterfly is advised

December 21, 2020 / 07:29 AM IST


Nifty gained for the fourth consecutive week. Looking at the previous 7 weeks, except one week, Nifty has gained continuously. Looking particularly at the week gone by, the gains in this week are not that big but Nifty had up move on each day. The range that Nifty had this week was from 13,450 to 13,800 level which was roughly 350 points.

After a lull in the first couple of sessions, Nifty gained momentum mid-week. On the third day, Nifty opened higher and crossed the 13,700 level, sustained. In the last two days of the week, Nifty gained half a percent and touched 13,800-level. At the higher-level, little profit booking was seen that led Nifty to close at 13,760. Overall, Nifty futures gained nearly 1.8% in this week.

On the other hand, Bank Nifty did not see a similar upward movement. The range of Bank Nifty future in the week gone by was 30,340-31,000. Despite the big moves that were seen intraday, Bank Nifty futures closed with a small change in the past week. Overall, Bank Nifty gained 0.4% (126 points).

Looking at the Open Interest (OI) for Nifty, OI increase was seen in three out of five session last week. As the past week stated, on a couple of days OI declined marginally. After that, a sudden increase in OI was witnessed. On the third day, OI increase was nearly 7.35% that indicated healthy start of long built-up. In the last two sessions of the week, OI increase was nearly 4.4%. Overall OI change was on positive note and OI increased by 11.75%.

Moving on to Bank Nifty, the OI activity was more on the unwinding side. Mid-week inflow of longs was over shadowed by the force of unwinding during the week. This resulted in a decrement in the overall OI tally for Bank Nifty this week. The 2% drop this week can be attributed to unwinding of longs at higher levels.


Aggregate stock futures OI did see a rise. Most of the stocks also posted gains for the week. However, the increment in price was not matched by increment in OI. Short covering or in many cases profit taking led to nearly half of the stocks losing OI this week.

Slicing the futures into sectors we could see most of the sectors this week witnessing long addition or short unwinding. BEL and L&T led the longs in capital goods. Vedanta and SAIL led longs in Metal. ESCORTS and Hero MotoCorp led the shorts in Auto. PNB led shorts in the PSUB, MGL and GAIL led shorts in OIL sector. M&MFIN and LIC Housing Finance led in the Short Covering in NBFC. Most of the Pvt. Banks also witnessed unwinding (possible higher level profit booking).

Sentimentally speaking, Nifty OI PCR rose from 1.51 to 1.64 this week. This is rather a modest increase week over week. There was an overwhelming reading of 1.88 on the day of weekly expiry. The weekend drop makes it a bit more comforting.

On the risk front, India VIX did rise in the beginning of the week but the settled down at previous week’s close towards the weekend. Such low IVs do make it a bit discomforting being at lower extreme of recent times. However, considering the low momentum in the Nifty this can be overlooked as long as the heavily built put strikes are not breached.

Finally, lack of momentum in both Price and OI of Bank Nifty is concerning. Short in some of the constituents along with long unwinding in some indicate exaptation of pullback. Proximity of Call writers against Put writers, builds an expectation that amid neutral OIPCR the expectation remains that of a pull back. Amid loss of momentum, Bank Nifty lost on participation, few constituents added shorts this week, hence a hedge via Modified Put Butterfly is advised.

Modified Put Butterfly is a 4-legged strategy where 1 lot of Put close to current underlying level is bought against that 2 lots of lower strike Puts are sold and 1 more lot of Put is bought but closer to the Put sold strike. This keeps the lower but constant profits in case of downward breakout. This is a fairly risk averse and a universal strategy.



Disclaimer: The views and investment tips expressed by investment experts on are their own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Shubham Agarwal is a CEO & Head of Research at Quantsapp Pvt. Ltd. He has been into many major kinds of market research and has been a programmer himself in Tens of programming languages. Earlier to the current position, Shubham has served for Motilal Oswal as Head of Quantitative, Technical & Derivatives Research and as a Technical Analyst at JM Financial.
first published: Dec 21, 2020 07:29 am

stay updated

Get Daily News on your Browser
ISO 27001 - BSI Assurance Mark