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Deploy Nifty Modified Call Butterfly strategy: Shubham Agarwal

The fall in India VIX indicates ease in commotion despite of recent rise. However, considering the rise already in place a nimble footed bullish strategy of Modified Call Butterfly is advised.

November 09, 2020 / 08:04 AM IST

Shubham Agarwal

Global equities cheered the outcome of US election and India was no different. After a nervous end to the previous week and expiry, Nifty started on a rather positive note. The momentum was not so promising at first, but as the days passed by the increments in the major index of Nifty started coming in at an incremental pace.

Long standing hurdle of 12000, where we had already made failed attempts of sustaining, was also cleared in this up move. For the week gone by Nifty had gains in excess of 5%. At this juncture Nifty stands in less than 2% proximity of the all-time high.

Bank Nifty had similar run as Nifty. It was one up day after another from the start of the week. There was a brief pause mid-week, but it was back to business as usual from the first expiry of November. Stellar performance of Bank Nifty pushed it higher by over 12%, that’s more than double the gains of Nifty for the week.

Recent outperformance has definitely pushed Bank Nifty more in upticks than Nifty, but the Bank Index still has a lot of catching up to do. This is evident when we compare the current standing of Bank Nifty with its all time high. Bank Nifty is still 18% lower than the same.

On the open interest (OI) front, Nifty started the week with unwinding many hedges. This unwinding was followed by rather humbled longs. There were increments in the second half of the week that was enough however, to clear this dent of short covering and add incremental OI with fresh longs to the tune of 5% for the index’s futures for the week.

Bank Nifty also did not have a clear streak of long interest addition throughout the week. Short covering was present as OI activity in Bank Nifty as well, in the second half of the week. However, Longs in Bank Nifty were more overpowering than Nifty. As a result, Bank Nifty ended the week with over 11% long additions for the week.

Aggregate stock futures OI activity was also promising. This was evident in over 6% addition in the aggregate OI tally. Pockets of shorts did find an escape with about 30% of the total participating stocks covered shorts, while long interest addition remained the most attractive OI activity.

Slicing the stock futures further we learn, most of the sectors and stocks added either longs or covered shorts. Steel stocks among Metal names added notable longs, LIC Housing and Chola led NBFC in longs. Voltas led Capital Goods stocks in longs. Banking rose the highest with almost across Pvt. and Public Banks led by RBL and PNB respectively.

Sentimentally, speaking, the risk index India VIX lost about 4 points for the week. This was one of the biggest falls in recent times. This could have been due to positive outcome of the event of U.S. election.

Even the OIPCR ballooned up with excessive Put writing in both Nifty and Bank Nifty. While Nifty saw 30bp rise in OIPCR for the week, Bank Nifty OIPCR at 1.6 reached one of the highest levels of 2020.

Finally, early expiry longs in Nifty are indicative of conviction in the up move. The put congestion in 12000 indicates put writers comfortable with current elevated levels. Lastly, fall in India VIX indicates ease in commotion despite of recent rise. However, considering the rise already in place a nimble footed bullish strategy of Modified Call Butterfly is advised.

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



(The author is CEO & Head of Research at Quantsapp)

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
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: Nov 9, 2020 08:04 am