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Deploy modified call butterfly strategy in Nifty: Shubham Agarwal

Considering the bullish momentum, the upcoming week can be approached with a low-risk strategy like Modified Call Butterfly in the Nifty.

December 27, 2021 / 11:39 AM IST

After massive selling, the stock markets made a modest recovery last week, with the Nifty 50 index regaining and staying above the 17,000 level. Once again, the IT sector contributed the most to the gains.

The Nifty has important support levels in the 17,500-16,600 range. On the open interest front, a long build-up was witnessed in the Nifty over the week gone by while it closed with a marginal loss at 17,003.75.

On the other hand, the Bank Nifty was unable to sustain above 35,000. This sectoral index closed at about 34,881 with a loss of 2.43 percent last week after trading in the range of 35,550 to 34,123. On the open interest front, long unwinding was witnessed in the Bank Nifty over last week.

For the upcoming weekly expiry, put writers showed more aggression by building more positions than call writers. The Nifty’s immediate resistance stands at 17,500, where almost 5.8 million shares have been added, followed by 18,000 levels with 7.3 million shares. On the lower side, the immediate and vital support level is at 17,000, where almost 5.9 million shares have been added, followed by 16,500, with the addition of 5.9 million shares.

Looking at the upcoming Bank Nifty weekly expiry data, on the upper side, immediate resistance stands at 35,500 (1.5 million shares), followed by 36,000 (1.7 million shares). On the downside, the immediate support is at 34,500 (1 million shares), followed by 34,000 (1.2 million shares).

Close

The India VIX, a measure of volatility, decreased by 1 percent from 16.34 to 16.18 over last week. The India VIX is trading near the lowest level of the pre-Covid crash and has given some relaxation in the market. Further downticks in the India VIX can push the upward momentum in the Nifty.

The Nifty open interest put call ratio (OIPCR), a sentiment indicator, increased during the week to 1.006 from 0.803. The Nifty Bank OIPCR moved during the week to 0.828 from 0.539. Overall data indicates more put writers than call writers in the Nifty.

On the weekly contribution of sectors to the Nifty, most were negative. Sectors such as PVTB and NBFC collectively contributed almost 130 points to the Nifty’s loss, whereas IT alone contributed about 90 points on the positive side.

Among the top gainers and losers of the month in the F&O segment, First Source Solutions (FSL) topped by gaining over 9.8 percent, followed by HCL Technologies 7.8 percent, and Godrej Consumer Products 7.2 percent. AU Small Finance Bank lost over 8.1 percent, Indian Hotels 13.7 percent, and Shriram Transport Finance Corporation 7.7 percent over the week.

Considering the bullish momentum, the upcoming week can be approached with a low-risk strategy like Modified Call Butterfly in the Nifty.

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Shubham Agarwal is a CEO & Head of Research at Quantsapp Pvt. Ltd. He has been into many major kinds of market research and has been a programmer himself in Tens of programming languages. Earlier to the current position, Shubham has served for Motilal Oswal as Head of Quantitative, Technical & Derivatives Research and as a Technical Analyst at JM Financial.
first published: Dec 27, 2021 11:24 am
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