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Weekly Options Strategy: Nifty bias may stay positive; consider Call Ladder

07 Aug , 2022   By : kaushiki Mehta


Weekly Options Strategy: Nifty bias may stay positive; consider Call Ladder

Strategy Positions
Buy Nifty 11 August 17400 Call at 133, sell 11 August 17600 Call at 52 and sell 11 August 17700 Call at 30, Total premium out-flow: 51; Target: 130; Stop loss: 15 (1 Lot Each).




The Nifty extended the gains by more than 1% last week but largely consolidated below 17,500 levels amid high volatility. Geopolitical tensions have kept the volatility on the higher side but continued buying from FIIs helped the Nifty to remain largely positive. At the same time, broader markets have relatively outperformed and midcap and smallcap indices gained almost 2?ch. We believe ongoing positive bias in Nifty to continue and it may head towards 17,800 levels in coming sessions.



From the options space, we are witnessing continued Put writing at ATM and OTM strikes with 17,400 Put holding the major open interest. Call writers continue to remain under pressure and the maximum Call base remained at 17,500. Closure among these options is likely to take Nifty towards 17,800 levels. On downsides, we remain positive with stop loss near 17,200 levels.



Nifty futures open interest remained low near 1 crore shares. Marginal closure of long positions was seen as Nifty approached 17500 levels, but any major short additions were not seen. Also, since most of the index heavyweights have already announced their results, the focus may move into midcap space in coming sessions.



India VIX has risen sharply last week despite continued positive movement. Closure among Call writers and escalation in geopolitical tension can be attributed to increase in IVs. However, we believe the volatility to settle down and do not expect to move beyond 20 levels in coming sessions.



We suggest Nifty ladder spread to reduce the time cost of the buy call option. The strategy will have open downside risk on the higher side if Nifty moves above 17,849.



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