F&O Radar | Implement short positions on Nifty to take advantage of moderate volatility

Skilled The Indian stock index managed to recover all its losses in just one and a half hours and closed at record levels, marking a new all-time high. Indian benchmark indices closed in the red on Friday, trading in a range throughout the day.

While the S&P BSE Sensex closed at 82,890.94, down 71.77 points or 0.09%, the broader Nifty50 index closed at 25,356.50, down 32.40 points or 0.13%. Here are the stocks that traded today:

“The next few weeks represent D-Day for global markets with Fed rate events and reduced IVs, volatility “The price is just around the corner. We have witnessed momentum which indicates that Nifty may move towards higher levels of 25,600-25,700, while a drop towards 25,100-25,150 will act as an opportunity,” says Shrey Jain, Founder & CEO of SAS online.

Technically, momentum suggests a positive bias in the market, and last week’s rally indicates that 25,100 is the new short-term base, Jain added.He Fed rate cut The event will be significant, but a rising stock market is likely to capitalize on any drop to lower levels. implied volatility (IV) for Nifty at 11.08 suggests a move of less than 1%.

Open interest Analysis of the OI index indicates a change in the index range from 24,800 on the lower side to 25,100. On the upper side, the range is extended to 25,500-25,600.

“With that, directional bias is likely to provide support on Nifty, but on the upside, we expect 25,600 to be a key resistance,” Shrey Jain said.

With this, Jain suggests implementing a short choke that captures the range and helps us gain the decay.

Short choke

The strong strangle strategy is a Options trading An approach in which an investor buys an out-of-the-money (OTM) call option and an out-of-the-money put option on the same asset, with the same expiration date. This strategy aims to profit from significant price movements in either direction.

It is called “strong” when options are priced far from the current price, which reduces the cost of the strategy while providing potential profits if the asset experiences substantial volatility.

(Prices as of September 13)

“We will receive a net premium of 101 points, with a stop loss set at 50% of the premium, which is equivalent to 150 points. We recommend implementing this strategy on Monday morning during the early trading hour,” Jain said.

Below is the strategy results chart:

(Fountain: SAS online)

The maximum profit in the event of an uptrend is Rs 2,550, which is approximately 3.5% of the capital, provided the index remains between 25,050 and 25,600. Losses can be managed with a trailing stop loss of 50% on both sides of the strategy. This strategy benefits from moderate volatility, while time decay (theta) favours the position.

For example, if a premium of 100 points is received, the stop loss can be set at 150 points.

“It is recommended to implement this strategy during the early trading hour on Monday when high levels of volatility are expected,” suggests Jain.

Conservative traders may also consider taking partial profits if premiums fall by 50%. For example, if premiums fall from 100 to 50 points, a profit can be made.

(Disclaimer:The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of The Economic Times.