Skip to main content

Bank Nifty likely to be rangebound, experts recommend short strangle

By
Bank Nifty likely to be rangebound, experts recommend short strangle 
Traders can hope to rake in modest gains by initiating a risky short strangle on Bank Nifty options, which data show would trade in a 26,000-27,000 range this series. The strategy consists of selling a Bank Nifty call and put at 26,800 and 26,000, respectively, which covers the 1,000-point range when the premium for selling the strangle is included. Both the options expire on June 28. The Bank Nifty closed at 26,417.4 on Friday. 
The risk lies in the index breaking sharply above or below the 1,000-point range, if global trade tensions escalate, in which case losses can be unlimited, unless the trader puts stop losses. Assuming Friday closing prices of Rs 124 a share (40 shares equal one contract) for the 26,000 put and Rs 118 for the 26,800 call, the seller receives a combined Rs 242 from the sale of the two strikes. The expectation as of now is that the Bank Nifty would not break out of the 26,800-26,000 range significantly in the nine days remaining till expiry of the current series. The time decay, or theta, will lead to premia shrinking, unless volatility jumps unexpectedly. 
The maximum profit is Rs 242 a share, ex-brokerage and relevant taxes. It happens if the Bank Nifty expires in the 26,800-26,000 range in which case both the call and the put expire worthless. The upper breakeven point, above which the trader begins to face losses, is 27,042. The lower BEP (break-even point) is 25,758, below which the trader faces severe losses. Each point above or below 26,800 and 26,000 reduces the maximum profit. 
Say if the Bank Nifty expires at 26,900, the trader will have to fork out Rs 100 to the 26,800 call buyer, leaving him with Rs 142. But, if it expires at 27,100, the trader loses Rs 58 a share. Similarly, if Bank Nifty closes at 25,700, the loss is Rs 58. Each point above or below the two breakeven points keeps increasing the losses unless the trader puts a stop loss. 
Amit Gupta, derivatives head at ICICI Direct, is a proponent of the strategy, which he said traders could initiate on Monday. He expects the Bank Nifty to remain range bound, especially after the sharp 7.7 per cent move it experienced between April and May expiries during which the Nifty barely moved a percent. He also adds that the higher volatility of the past week would aid the option sellers to command decent premiums from the prospective buyers. 
However, Rohit Srivastava, fund manager (PMS) at Sharekhan by BNP ParibasNSE -0.80 %, said the threat of escalating trade war tensions could result in a spike in volatility and hit the strangle seller sharply unless “strict” stops were put in place. He expects rising bond yields and a weaker rupee to increase downside pressure on key indices. 
The Bank Nifty put call ratio for the current expiry is 0.7, which means traders have sold 70 puts for every 100 calls sold. FPIs net purchased Rs 604 crore of Nifty and Bank Nifty futures on Friday. This was against sales of Rs 1,575 crore of cash market shares on the same day. 
The Economic  Times, New Delhi, 18th June 2018
 

Comments

Post a Comment

Popular posts from this blog

GST collection for November rises by 8.5% to Rs.1.82 trillion

By
  New Delhi: Driven by festive demand, the Goods and Services Tax (GST) collections for the Union and state governments climbed to Rs.1.82 trillion in November, marking an 8.5% year-on-year growth, according to official data released on Sunday. Sequentially, however, the latest collection figures are lower than the Rs.1.87 trillion reported in October, which was the second highest reported so far since the new indirect tax regime was introduced in 2017. The highest-ever GST collection of Rs.2.1 trillion was reported in April. The consumption tax figures highlight the positive impact of the recent festive season on goods purchases, providing a much-needed boost the industry had been anticipating. The uptick in GST collections driven by festive demand had been anticipated by policymakers, who remain optimistic about sustained growth in rural consumption and an improvement in urban demand. The Ministry of Finance, in its latest monthly economic review released last week, stated that I...
Post a Comment
Read more

Budget: Startup sector gets new Fund of Funds, FM to allocate Rs 10K cr

By
  The Indian startup sector received a boost with Finance Minister Nirmala Sitharaman announcing the establishment of a new fund of funds (FoF) in the Budget 2025. The minister unveiled a fresh FoF with an expanded scope, allocating Rs 10,000 crore. The initial fund of funds announced by the government with an investment of Rs 10,000 crore successfully catalysed commitments worth Rs 91,000 crore, the minister said.   “The renewal of the Rs 10,000 crore commitment to the Fund of Funds for alternative investment funds (AIFs) is a significant step forward for the Indian startup and investment ecosystem. The initial Rs 10,000 crore commitment catalysed Rs 91,000 crore in investments, and I fully expect this fresh infusion to attract an additional Rs 1 lakh to Rs 1.5 lakh crore in capital,” said Anirudh Damani, managing partner, Artha Venture Funds.   Damani further added that this initiative will provide much-needed growth capital to early-stage startups, further strengthenin...
Post a Comment
Read more

RBI to weigh growth slowdown, inflation at its MPC meeting this December

By
  Despite GDP growth declining to 5.4 per cent in the July–September quarter, the Reserve Bank of India’s (RBI) six-member monetary policy committee (MPC) is expected to maintain the current repo rate during its review meeting this week, according to a Business Standard survey of 10 respondents. Among the respondents, only IDFC First Bank forecast a 25-basis-point (bps) reduction in the repo rate. Since May 2022, the RBI has raised the repo rate by 250 bps to 6.5 per cent as of February 2023 and has held it steady across the last 10 policy reviews. The latest GDP figures, published on Friday (November 29), showed that growth for Q2 FY25 slowed to 5.4 per cent year-on-year, down from 6.7 per cent in Q1. Most survey participants suggested that the RBI might revise its growth and inflation projections for the financial year. The poll indicated that the central bank could lower its growth estimate from the current 7.2 per cent and increase its inflation forecast, currently at 4.5 per c...
1 comment
Read more