Nifty options strategy for upside bias: Fully protected trade with downside protection

At 13:52 hrs IST, the Sensex was up 832.53 points or 1.13 percent at 74,562.69, and the Nifty was up 190.20 points or 0.85 percent at 22,610.20

Indian benchmark indices saw a strong surge in buying activity on April 29, with the NSE Nifty 50 topping 22,600 in the afternoon trade, heading towards its all-time high in a show of strength.

“It is noteworthy that the Nifty has reacted from a ‘buy’ level and is ascending towards its all-time high levels, indicating strength,” said Rahul Ghose, CEO of Hedged.in. However, amid today’s jump in the index, the VIX is also increasing, which calls for caution, he added. India VIX jumped 12 percent today to a reading of above 12 points.

Another reason for the bias towards strength lies in the Bank Nifty index today, Ghose added.

Ghose recommends a low-risk options derivative strategy. “Given the potential shift in strength post the Fed meeting on the 1st, it is crucial to devise a fully protected trade with an upside bias yet shielded on the downside."

Nifty Bullish Conversion

Low-risk options derivative strategy recommended by Hedged.in:

Trade Structure:

(+1) Nifty Future Buy 1 lot 30th May expiry

(-1) Nifty 22550 CE Sell 1 lot 2nd May expiry

(+1) Nifty 22500 PE Buy 1 lot 2nd May expiry

What's notable about this trading strategy is that even if the Nifty falls or remains sideways, the trade incurs minimal losses.

Capital Requirement:

The capital required for the trade is Rs 33,500, per lot.

Trade Entry:

This trade can be entered today if the Nifty is trading between the levels of 22,500 and 22,550.

Maximum Loss:

The maximum loss in the trade is Rs 500, and the target in the trade should be 1.5 to 2.5 percent on the capital, depending on the time and individual risk appetite. The maximum loss is calculated with the inclusion of the modification mentioned below.

Also read: F&O Manual| Indices trade higher; Experts advise 'buy on dips' till Nifty above 22,250

Trade Modifications:

The trade is protected and can generate alpha even if Nifty moves sharply downward below 22,300 by rolling the calls one strike lower to 22,500 from 22,550.

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