options trading: Weekly Options Strategy: As Nifty50 looks to consolidate, go for Bear Put spread

Strategy Position:

nifty august 17700 buy put at 115 and sell august 17500 put at 58, total premium outflow: 57; target: 143; Stop Loss: 12.5 (1 lot each).


The Nifty closed in the green last week despite profit-booking on Friday amid frequent inflows of FIIs. Call writers remained under pressure throughout the week as the put base continued to strengthen. The broader markets also performed in line with the headline index as both the smallcap and midcap indices saw gains of 1%. Going forward, while the data points remain positive, a round of consolidation can be expected near the psychological levels of 18000 for Nifty and the focus may shift to midcap and small cap indices.

Nifty futures open interest rose sharply over the previous week and the current open interest was the highest seen in a month. While FIIs have liquidated some longs, retail participants have increased their long positions. We believe strong hands have booked some profits following a strong move seen during the series in anticipation of some consolidation.

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From options space, significant call writing can be seen on ATM strike with total open interest of more than 10 million shares on both 17900 and 18000 call strike. For the first time during the series, we are seeing higher call writing as compared to put base. Hence one can expect some consolidation below 18000 during settlement and fresh up leg can be seen only if Nifty moves above these levels.

India VIX remains sideways and consolidated near 18 levels throughout the week. With the result season almost over, the stock is likely to remain in focus amid a consolidation of specific activities. We believe any profit booking should be restricted to the level of 17500 in the settlement week.

Pay-off diagram:

Payoff Diagram-August21

(Author is Raj Deepak Singh, Analyst – F&O, ICICIDirect)


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