Trading Strategy for Budget day: Will Nifty outperform Bank Nifty?

Nifty Trading Strategy

The Nifty 50 and Bank Nifty maintained their upward journey for the fourth consecutive session on January 31, with the former outperforming the latter ahead of the key event – the Union Budget 2025. With bullish candlestick patterns forming on the daily charts and a Bullish Engulfing pattern on the weekly timeframe, the momentum turned in favour of the bulls. Hence, if positivity sustains due to budget announcements, experts expect the Nifty to face a hurdle at the 24,600–24,700 zone, followed by the 23,800–24,000 region acting as strong resistance. On the lower side, 24,300 may serve as immediate support, followed by 23,000 as key support. Meanwhile, if the Bank Nifty defends 49,000, the 50,000–50,500 zone is expected to be a key resistance area. However, below 49,000, selling pressure may extend towards 48,500.

On Friday, January 31, the Nifty 50 rallied 259 points (1.11%) to 23,508, while the Bank Nifty closed at 49,587, up 275 points (0.56%), with a healthy market breadth. About 1,931 shares saw buying interest compared to 622 shares that declined on the NSE.

Additionally, according to experts, wild swings can’t be ruled out on such a big event day, and hence they suggest a few F&O strategies to make the trade profitable.

Nifty Outlook and Strategy

Sudeep Shah, Deputy Vice President and Head of Technical and Derivative Research at SBI Securities

Despite the heightened volatility surrounding the Union Budget, the benchmark Nifty index has extended its pullback rally for the fourth consecutive trading session. Notably, it has managed to surge above the 20-day EMA (Exponential Moving Average) for the first time in 20 trading sessions. Adding to the positive momentum, the 20-day EMA has now started to edge higher, while the previously steep falling slopes of the 50-day and 100-day EMAs have slowed down significantly.

This signals that we are approaching Union Budget 2025 with short-term bullish momentum. More importantly, the weekly RSI (Relative Strength Index) of the index has found support near the 40 level, staging a sharp rebound. It is now on the verge of giving a bullish crossover. As per the RSI range shift theory, in a bullish phase, the 40 level serves as the oversold region for the index or stock, reinforcing the positive outlook.

Regarding crucial levels, the 200-day EMA zone of 23,600–23,650 will act as a significant hurdle for the index. If the index sustains above the level of 23,650, we may witness an extension of the pullback rally up to the 24,000 level. On the downside, the support has shifted higher to the zone of 23,270–23,250. If the index slips below 23,250, we may witness a correction, and in that case, the zone of 22,800–22,770 will act as crucial support.

On Union Budget day, we anticipate heightened volatility in the market. Historically, budget day has witnessed sharp intraday swings as investors react to key policy announcements, fiscal projections, and sector-specific reforms. Traders and investors must remain cautious, manage risks effectively, and focus on key technical levels to navigate the expected turbulence.

Key Resistance: 23,600, 23,650

Key Support: 23,270, 23,250

Strategy: Nifty Short Iron Butterfly (Sell 23,500 strike Call at Rs 290, Sell 23,500 strike Put at Rs 199; Buy 23,800 strike Call at Rs 138, Buy 23,200 strike Put at Rs 106 for February 6 expiry). The maximum profitability (net inflow of 245 points = 290 + 199 – 138 – 106) is Rs 18,375, while the maximum risk is 55 points, i.e., Rs 4,125 if spot Nifty closes below 23,255 or above 23,745. The profitable range will be 23,255–23,745 (spot Nifty), with a risk-reward ratio of 1:4.45.

Dhupesh Dhameja, Derivatives Analyst at Samco Securities

Nifty is demonstrating a resilient uptrend, holding firmly above its key support levels of 23,300–23,350, reflecting sustained buying interest at lower levels. The index closing above its 20-day EMA and making higher lows indicates strength. On Union Budget day, volatility is expected, but there is cautious optimism that fiscal reforms or positive announcements will continue to support the bullish momentum.

In the options market, significant open interest has accumulated at the 23,000–23,300 Put strikes, establishing a solid support base for the index. On the resistance side, the 23,800–24,000 Call strikes are seeing the highest open interest, suggesting these levels may pose a challenge to the upside in the near term. The Put-Call ratio (PCR) stands at 1.03, reflecting balanced market sentiment with a slight bullish bias. This setup indicates a tug-of-war between buyers and sellers, with a neutral to mildly bullish outlook prevailing.

Key Resistance: 23,800, 24,000

Key Support: 23,300, 23,350

Strategy: Traders can consider long Nifty February Futures if the price crosses above 23,680–23,700, setting a stop-loss below 23,500. Profit-taking can be considered once the index reaches 23,900–24,000. Be prepared for potential volatility following the Union Budget.

Preeti K Chabra, Founder of Trade Delta

Nifty closed with a strong bullish candle and a positive channel breakout. It gave a positive signal of trend continuation by closing above the important level of 23,350. On the relative strength index, Nifty gave a bullish crossover. Thus, we see a positive outlook for Nifty. However, since we have the Union Budget, the market can take direction as per the policy statement in the budget.

On Budget day, traders seek to capitalize on market swings, and a high VIX presents an ideal scenario for derivative traders and option sellers looking to maximize gains from volatility. However, with a VIX in the high range of 16–17, buying expensive option premiums may not be favourable, as even if the market moves in the anticipated direction, a drop in volatility could lead to a premium crush, limiting potential profits or losses. On the other hand, selling naked premiums can be risky, as sudden market swings could result in significant, potentially unlimited losses.

To trade this volatility effectively, traders should adopt strategies that benefit from volatility crush while mitigating risks from sharp market movements. A balanced approach, combining both option buying and selling—such as a Short Straddle with strict stop-loss or Butterfly Spread—can help leverage the volatility crush while providing protection against extreme price movements.

Key Resistance: 23,622, 23,800

Key Support: 23,348, 23,189

Strategy: We advise traders to make a Short Straddle in Nifty with a strict stop-loss or Butterfly Spread.

In a straddle, the trader sells a Call and a Put at the same strike price to receive the premiums on both the short Call and short Put positions. Usually, on an event day, traders expect to profit from implied volatility (IV) crush as the event ends, allowing a major part of the premium received on the short Put and short Call positions to be retained. The Straddle selling is usually advised for expert traders, and for novice traders, it is best to buy hedges for protection. We book this strategy as soon as the premium or volatility crashes.

Bank Nifty - Outlook and Positioning

Dhupesh Dhameja, Derivatives Analyst at Samco Securities

The Nifty Bank continued to consolidate in a bullish range above the 49,000 level, following a breakout from a double-bottom chart pattern. The index remains positive, holding above its 20-day EMA with the RSI above 50, signaling healthy momentum. The Union Budget could act as a catalyst for further activities in the banking sector, especially if fiscal measures or banking reforms are announced.

In the options market, Nifty Bank has seen significant accumulation of open interest at the 50,000 strike Call, signaling strong resistance near this level. On the support side, there has been robust Put writing at the 49,000 strike, further solidifying the 49,000–48,900 range as a strong support zone. The Put-Call ratio for Nifty Bank stands at 1.85, indicating strong bullish sentiment among traders. This suggests that market participants are optimistic and expect upward momentum, with support levels holding firm as long as the index stays above 49,000.

Key Resistance: 50,000, 50,500

Key Support: 49,000, 48,900

Strategy: Traders can consider long Nifty Bank February Futures once the price crosses above 49,900–50,000, with a stop-loss below 49,500. Profit-taking can be done around 50,700–50,900. Monitor market reactions closely post-Budget announcement for any sudden volatility.

Preeti K Chabra, Founder of Trade Delta

The Bank Nifty gave a channel breakout on the bullish side and is making a higher low and higher high sequence over the past four trading days. It closed above an important level of 49,247 and is now trading in bullish territory. Usually, on a non-event day, we would prefer to implement a bullish strategy, but with the Union Budget to be released on February 1, the market can move in any direction, and with such high VIX, traders typically try to take advantage of a volatility crash once the event concludes.

Key Resistance: 49,800, 50,230

Key Support: 49,300, 48,892

Strategy: We advise traders to make a Short Straddle in Bank Nifty with a strict stop-loss or Butterfly Spread.

Sudeep Shah, Deputy Vice President and Head of Technical and Derivative Research at SBI Securities

The Bank Nifty has been strongly outperforming the frontline indices. On a daily scale, the index has formed an Adam & Adam Double Bottom and is currently oscillating near the neckline of the Double Bottom pattern. The index is comfortably trading above its 20-day EMA level for the second consecutive trading session.

The momentum indicators and oscillators also suggest bullish momentum in the short-term. The daily RSI is trading above its 9-day average, and both are edging higher, which is a bullish sign. Going ahead, if the index sustains above the neckline zone of 49,700–49,800, we may witness a sharp upside rally up to the 200-day EMA level of 50,225, followed by 50,600 in the short term. On the downside, the zone of 49,100–49,000 will act as immediate support for the index.

Key Resistance: 49,700, 49,800

Key Support: 49,100, 49,000

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