We expect wild swings to continue while any periodic up-move is likely to be capped towards 11,200-11,350 as supply zone now, volatility remained at higher end.
September series ended on a panic mode for bulls as Nifty nosedived 3 percent on September 24 to close a shade above 10,800 mark as massive unwinding of puts positions seen as short gamma traders were trapped on the wrong foot.
Nifty and Bank Nifty lost 7 and 13.5 percent each on an expiry-to-expiry basis.
Highlights for the September series are - FII’s net long index put positioning highest in last six months; large cash-based selling and unwinding on options positions seen in last week of expiry; India VIX rallied 24 percent on EoE basis; Bank Nifty continued its overall under-performance (this year it’s down by 36 percent against Nifty’s 11 percent decline).
Rollovers for Nifty and Bank Nifty stood at 71 percent (83 lakh shares) and 79 percent (17.4 lakh shares) against 80 percent (1.21 crore shares) and 78 percent (13.2 lakh shares) in August.
Market-wide rolls remained higher at 92 percent against a 3-month average of 90 percent. Sector-wise, short positions carry forward was seen in metals, banking and telecom, while pharma saw unwinding of long positions.
FII’s derivative stats index futures long rolls stood at 49 percent against a 3-month average of 75 percent while index futures short rolls were 63 percent against 53 percent.
October series starts with index futures long to short ratio of 0.79x against previous month's 2.9x at the start of series. On the options front, max call/put OI on Nifty for October monthly series stands at 11,500 call (OI 1.5mn) and 10500 put (OI 3mn) contracts. We expect wild swings to continue while any periodic up-move is likely to be capped towards 11,200-11,350 as supply zone now, volatility remained at higher end.
Trade short strangle on Nifty next week: Bear put ratio spread on Nifty (Expiry October 1)
Buy 10,900 Put and Sell 10,700 put with inflow on the strategy of 5 points with a target is 120/150 and stop loss is on October futures at 10,500.
Lower break-even points for the strategy is 10,500 levels, while on any close above 10,900 mark fixed profits of 5 points on the strategy.
Sharp selloff in the past couple of days along with elevated VIX levels likely to keep the recovery short.
The payoff for the strategy: Bear put ratio spread.
(The author is Senior Derivatives Analyst – Institutional Equities, YES SECURITIES)Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.