Sell 25 Jan 18050 Call at 93; Sell 25 Jan 18050 Put at 89; Target: 10; Stop loss: 280 (1 Lot Each)
The Nifty recovered marginally last week, and despite the weakness seen on Friday, it closed the week in the green. The resumption of FII flows into markets helped Nifty to outperform global indices. However, the outperformance of Nifty can be attributed to technology and
twins, while broader markets have underperformed. Going ahead, we expect the Nifty to recover towards 18400/500 levels with support near CMP, considering the Put base and January VWAP levels.
From a data perspective, during the recent recovery, the Nifty saw closure among short positions as FIIs closed their shorts last week. Moreover, the prevailing high Nifty premium has declined considerably in the last few sessions and is just close to 20 points ahead of the monthly settlement. However, aggressive Call writing is continued at ATM and OTM strikes which may act as an immediate hurdle. However, acceleration might be seen if Nifty can move above 18,200 levels.
Technology heavyweights have provided much-needed support to the market amid better-than-expected quarterly results with select infra stocks. We believe that positive bias in these stocks should continue to lend support to the market.
The volatility index has not risen much and is still below the 15 levels suggesting an expectation of limited declines. However, a breakout in the ongoing range of 17800 and 18200 may trigger a rise in volatility until then, non-directional strategies can be adopted.
As we are keeping our view consolidation hence, we advise traders to go for a short straddle option strategy. It is a 2 leg option strategy and consists of selling ATM strike of Call and Put options. However, one needs to be careful on both sides as strategy will start making losses if the Nifty moves above 18250 or moves below 17850.
Traders will be in maximum profit if Nifty expires near 18000 levels on the Jan 25 expiry.
(Raj Deepak Singh is an F&O analyst at ICICIdirect)
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