Aggressive option traders can use short strangle to get benefit of time decay

November 25
01:28 2019

Chandan Taparia

Nifty index has been consolidating in range of 250 points in between 11,800 to 12,038 zones from last 16 trading sessions.

It witnessed some profit booking from higher levels in last two sessions but has been forming Doji candle for third consecutive week, indicating indecisiveness among the market participants.

The index made lower high — lower low and formed a Red body candle on daily chart which indicates existence of resistance zones. Now it has to continue to hold above 11,850 to witness an upmove towards 12,035 then 12,103 while on the downside major support exists at 11,800-11,780 levels.

India VIX fell by 1.06 percent from 15.03 to 14.87 levels. Lower VIX suggests limited momentum in the market.

On monthly options front, maximum Put open interest is at 11,900 followed by 11,800 strike, while maximum Call open interest is at 12,000 followed by 12,100 strike.

We have seen meaningful Call writing at 12,000 then 11,950 strike while minor Put writing at 11,850 and 11,800 strikes. Option data suggests a trading range in between 11,800 to 12,100 levels.

Bank Nifty formed a Red body candle on daily chart while it concluded the week with marginal gain of 0.33 percent but formed a Doji candle on weekly scale. It continued its formation of higher highs – higher lows for sixth consecutive week and thus the overall trend remains positive but pace of buying is now lacking which may give some consolidation if follow up buying doesn’t happen.

Till the time, Bank Nifty sustains above 30,800 levels, we maintain our positive stance for an upside momentum towards 31,500 then 31,783 while next support below 30,800 is placed at 30,500 then 30,300 levels.

Nifty has got stuck in a range where declines are bought but follow up is missing, so better to use Bull Call Spread or Call Ladder Spread with the view that positive to rangebound bias could continue.

Aggressive option traders can do the short strangle to get the benefit of time decay. Stock specific positive view may be seen in HDFC, Bosch, Eicher Motors, JSW Steel, PVR, Grasim, Zee Entertainment and PFC while weakness is seen in Infosys, TCS, Petronet LNG, Havells, IndiGo, etc.

(The author is Vice President | Analyst-Derivatives at Motilal Oswal Financial Services)

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