Weekly Expiry: Investors can use short options strategy next week

The Nifty showcased resilience amid falling global markets as the index managed to close above 11,500 mark despite deep cuts in most of the peers

The near-term trading range is hovering between 11,350 to 11,600, and the monthly expiry which is on September 24, could happen in this range.

However, any range breakout is unlikely given the options buildup, technical setup and no major pickup in volatility seen even on down days. This indicates that the headline index is likely to remain in consolidation mode.

Traders should use any rally towards 23,000 on the Bank Nifty to trim positions and fresh shorts can be initiated below the 22,100 mark while the Nifty50 is stuck in a congestion zone of 11,350-11,600 which is likely to act as floor and ceiling for the markets in the near-term.

On the open interest (OI) front, contrasting trends are visible. The Bank Nifty on correction days sees significant OI buildup while on up move days, it sheds OI that indicates at higher levels traders are using the rally to trim long positions and create fresh shorts. We expect near-term underperformance to continue for banking stocks.

Highlights for the weekly expiry were: a) IT index rose by 8.5 percent in the weekly expiry (from last Thursday) with fresh highs seen for HCL Tech, TCS, Infosys, and Wipro, b) Index futures net long positions for FII’s were lowest during the series with long-to-short ratio moving below 1x levels, and c) Global CBOE VIX indicates forward month traders pricing wild movements on the back of US elections.

On the stock futures front, large traction is visible from traders on IT and pharma stocks. Shorts additions were seen in metals with likes of Hindalco and Tata Steel adding short OI with price fall, and any rally in short-term should be used to curtail positions.

In the pharma space, stocks like Dr Reddy’s traded with highest-ever volumes at an aggregate of 24 percent fresh long buildup.

Short strangle on Nifty (Expiry 24th September)

Sell 11,700 call and Sell 11,300 put with a combined premium of ~82-85 range

Target is 1

Stop loss is 124

Breakeven points: Upside 11,785 and lower Breakeven point 11,215 for Sept Nifty futures.

Options set up indicates tight band trade with max pain for September series seen at 11,500 mark, Implied volatility is hinting no major panic for Nifty as follow up of up-move and downside is missing.