There are multiple reasons behind this correction which was overdue but two main reasons are selling of FII/FPI due to structural changes in weekly options expiry and secondly due to China rate cut.
Technically, the uptrend is intact as the 50 MA is continuously sloping upward, while the 20 MA has turned sideways to negative. This indicates that in the short term we may see a correction or sideways price action, but the uptrend remains intact.
“We expect 25,000 to be important as it also coincides with 50 MA,” says Shrey Jain, Founder and CEO of SAS Online.
The RSI is in an oversold zone below 30, indicating that a delayed bounce may be seen or markets may take a breather, while the number of stocks below their 5 MA and 20 MA short term indicates that there may be some traction at lower levels.
Derivatives data points to short accumulation between 25,300 and 25,400 on the CE side, while fresh long accumulation is seen at 25,000 and 24,800. “The IV has jumped from less than 10 levels to 14, also indicating a range expansion in prices, while PCR to the lowest level since March at 0.44 indicates an oversold state, being a contrary indicator” Jain added. With range expansion in the underlying index, Shrey Jain believes that the market should move into a contraction phase in the next week and stabilize between 24,800 – 25,300. Most of the domino effect of various factors seems to be absorbed.
With the market expected to encounter short-term difficulty at 24,800 and limited upside to 25,300 and IV already fueling options premiums, a Short Iron condor strategy on Nifty is recommended as it benefits from a move within of the range and a period in which prices move from expansion to contraction.
Short Iron Condor
Short Iron Condor is an advanced options trading strategy. It involves the use of four options contracts (two calls and two puts) with different strike prices, but all expiring at the same time.
The goal is to make profits when the underlying asset stays within a certain price range. Money is made if the stock price remains relatively stable, but money can be lost if it moves too much in either direction. It is considered a limited risk and reward strategy.
(Prices from October 4)
Below is the profit chart of the strategy:
ETMarkets.com(Fountain: SAS online)
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
Disclaimer:
The information contained in this post is for general information purposes only. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.
We respect the intellectual property rights of content creators. If you are the owner of any material featured on our website and have concerns about its use, please contact us. We are committed to addressing any copyright issues promptly and will remove any material within 2 days of receiving a request from the rightful owner.