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Last Updated : Jul 09, 2018 06:50 PM IST | Source: Moneycontrol.com

Traders can adopt an Long Iron Butterfly Spread on Bank Nifty

Shubham Agarwal of Quantsapp said Bank Nifty option data suggests highest call congestion at 26,000 put and 27,000 call with open interest of over 6 lakh shares.

Moneycontrol Contributor

Shubham Agarwal

The July series kick started on a positive note with both the Nifty and Bank Nifty gaining 0.75 percent to 0.5 percent, respectively. However, the broader range for indices still remains intact.

Option writers are using these alternate bouts of buying and selling to build positions aggressively both in the Nifty and Bank Nifty. Nifty option data depicts highest congestion at 10,600 put while call writers are distributed across strikes 10,800 and 11,000. Volatility is relatively high for July, but the index is yet to witness a breakout in either direction.


With the onset of earning season, sector and stock-specific movement will remain in the limelight. With IT majors like Infosys and Tata Consultancy Services and private sector banks like IndusInd Bank, Kotak Mahindra Bank and HDFC Bank are likely to announce their results in the July series, stock-specific volatility could emerge. The Bank Nifty may stay in a range, with large oscillation in heavyweight - HDFC Bank - also supporting the sideways movement.

Volatility index - India VIX - for the week remains confined in the 11-14 percent band signalling sideways movement. Stock-specific volatility skew can help forecast perceived volatility and the expected trading band.

Bank Nifty option data suggests highest call congestion at 26,000 put and 27,000 call with open interest of over 6 lakh shares. Volatility skew is flattish in the 26,000-27,000 band indicating further gyration. Thus, a low risk oscillating strategy - Long Iron Butterfly Spread - is recommended in the Bank Nifty.

Long Iron Butterfly Spread is a rangebound strategy that offers decent reward-risk with low cost. It is set-up by selling at-the-money straddle and buying out-of-the-money strangles. Maximum profit in this strategy is made at the centre point, while maximum loss is capped beyond the outer bounds both on the upside and downside.



Disclaimer: The author is CEO of Quantsapp. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Jul 9, 2018 10:03 am