Stocks

Nifty: How Nifty option traders can position themselves ahead of Fed meet outcome

Strategy Positions:
Sell 1 lot Nifty 3 November 17800 Put at Rs 128 & Sell 1 lots 3 November 17800 Call at Rs 123, Total premium in-flow: Rs 251; Target: Rs 100; Stop loss: Rs 330.

Rationale

  • Buying spree continued for the 2nd week in a row where both Nifty and Bank Nifty gained another 1% on the back of strong recovery in global markets. Post the US GDP data, US 10-year bond yields declined from its one year high and slipped below 4% whereas the Dollar index remained near its one-month low. FIIs quantum of selling declined for the 2nd week in a row due to which their net sell in cash segment for October series stands only near 5000cr.

  • In the current move towards 17800, out-performance was seen in auto, metals and realty stocks. Nifty has started the November series with marginal lower OI with Call base remaining intact at 18000 strike. Volatility across the globe has declined; India VIX slipped below 17% mark and moved to April 2022 levels.

  • Ahead of the FOMC meet, we don’t expect any aggressive moves in Nifty. Throughout the October series, we saw stuck-up Call writers covering their positions and we expect similar action to continue once the index closes above 18000 levels. However, in case of any profit booking, we expect Nifty to hold 17500 levels

  • We feel in the coming days 500-point of range bound sessions cannot be ruled out before the FOMC meeting, we feel traders can go for a short straddle of ATM 17800 strike where profit will be made within the range of 17550 to 18050. However, one needs to be careful on both sides also as strategy will start making losses if Nifty moves above or below to the given range.

  • Trader will be in maximum profit if Nifty closed near 17800 levels on 3rd November expiry.

(Author: Raj Deepak Singh, Analyst – F&O, Currency, & Commodity, ICICIdirect)


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