Nifty June series sees short strangle build-up at 21,000-24,000 strikes as election nears, signals more upside bias

Ahead of the upcoming vote, there's a notable increase in writing ITM (in-the-money) put options for April series contracts, particularly at the 24,000 strike.

As general election 2024 nears, the pre-emptive positioning in the futures and options segment has begun, with sizeable positions being created in the June series, showing a higher positive bias.

After the recent correction, derivatives positions traders and investors are placing key bets on Nifty at 21,000 and 24,000 strikes, indicating a 3,000-point range to brace for the volatility of the general elections and its outcome.

Rahul Ghose, CEO at Hedged.in, said that options data shows above normal rise in the open interest in the June contracts. This is the first sign that traders and investors have started taking positions towards the big days to follow.

Key options data points 

Rahul Ghose highlights some key data points in the run-up to elections:

1 The shorting of put options is much higher than the shorting of call options, indicating an undertone of positive bias at first glance as we head into the big event. Larger quantities of 21,000 put options have been written as compared to other strikes, indicating that traders feel that this will act as a floor even in the case of a small correction, pre or post results.

1. Technical chart showing heavy rise is put open interest and short strangles in June contracts| Source: Rahul Ghose, Hedged.in2  There is a steady creation of short strangles using the 21,000 and 24,000 strikes of June expiry. This gives a cushion of 1,000 points only on the downside, but a cushion of 2,000 points (extra 1,000 points) on the upside, which further supports the above point

Open interest chart showing at sharp writing of ITM put options at 24,000 strike| Source: Rahul Ghose, Hedged.in

3 In the build-up towards elections, the April series contracts are seeing a sharp writing of ITM (in-the-money) put options on the 24,000 strike. This is very unusual and indicates that some large money expects a very sharp rally over the next 30 days.

"It will be very interesting to see whether these writers will reduce their positions on a 200-300 point dip in the index. This will further help us gauge the strength in conviction in the money behind this large options writing positions that is taking place," Ghose said.

"Another thing to keep in mind is the closing of the monthly candle on the March Nifty chart. If we see a monthly candle close below 21,850, we could see a potential change in the aggressive put writing that is currently underway. Until then, remember to always practise a safer and hedged way of trading derivatives, especially before such mega events, " Ghose advises.

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