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#39;Upside for Nifty capped at 12,000; deploy Call Butterfly Spread#39;

#39;Upside for Nifty capped at 12,000; deploy Call Butterfly Spread#39;
June 18
16:28 2019

Nifty and Bank Nifty witnessed volatile swings on either side throughout last week. Nifty spot touched an intraday high of 12,000 and ended the week in red down 0.4 percent. Bank Nifty followed Nifty and was down about 1.45 percent on a week on week basis.

Bank Nifty weekly options data depicts the highest Put base at 30,000 that can act as possible support and highest Call OI is placed at 31,000, which can be immediate resistance.

Nifty Options data for the weekly expiry shows highest Put OI is placed at 11,800, which can act as vital support while on the upside, aggressive call writing of around ~21.89 lakh shares is seen at 11,900/12,000 which can act as immediate resistance.

Over the week, India VIX was down 120 basis point to end at 13.66 indicating low volatility in the market. Meanwhile, Nifty PCR open interest (OI) increased 6 basis point to 1.4682 suggesting positive sentiment in the market.

On a week-on-week basis, OI activity was not too emphatic to signify any alteration to original long-long Unwinding Structure, with heavy PE OI at 11,800 that could act as possible support.

The upside remains capped by aggressive call writing of around ~21.89 lakh at 11,900-12,000.

Moderately bullish strategy Call Butterfly Spread is suggested for this week. Call Butterfly Spread is bullish to rangebound strategy that offers decent risk-to-reward ratio for traders at a low cost.

In this strategy, we need to buy 1 ATM Call, Sell 2 OTM Calls near target level and Buy 1 further OTM call to hedge the risk.

The maximum profit in this strategy is at Call written strike. As theta decay is fast in weekly options, it is idle for deploying Call Butterfly Spread.

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The author is CEO & Head of Research at Private Limited.

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