F&O Radar| Deploy Short Strangle in Nifty to trade range-bound oscillation

Frontline index Nifty50 achieved the 24,000 level milestone on Thursday, June27 and then sustaining above the same. The index surged 1000 points in just 17 trading sessions.

The CNX 500 saw some participation but Mid-cap, Small-cap and other broad-based indices were muted. The recent participation was mainly due to Reliance, ICICI Bank and HDFC Bank. Hence, it was a concentrated move of the Nifty 50 Index that was adding to the recent surge.

With that, the breadth has seen some deterioration as net new highs for last week saw decline, the 4% advance decline was sloping down as well and most importantly the percentage of stocks above their key moving averages like 20, 50 are down since 21st January.

“Technically, the Index has retracted by 1.414 of the entire move of event decline in June 1st week. The resistance as per Fib is based at 24194. Above that next resistance is at 24618 while support is at 23899.40 which is 1.272 of the same decline. So, combining the breadth study and price study there is a possible sideways move we can witness with some distribution as we enter the July month which has major events such as Budget and it is likely to pave the path for the coming month and not to mention, the earnings season is going to kick off. All in all, we may see volatility, sector rotation, and some profit booking and new leaders,” says Shrey Jain, Founder of SAS Online.


Jain expects Nifty to be ranged between 24,300 and 23,800 and for the coming week expiry with 24,000 being the anchor point.

In such a situation, he suggests deploying a Short Strangle options strategy on the expectation of the volatility in the prices to cool off.

Short Strangle

A short strangle consists of one short call with a higher strike price and one short put with a lower strike. Both options have the same underlying stock and the same expiration date, but they have different strike prices.

The collected premium will be 138 hence it is suggested to maintain a stop loss on rolling basis of 50% of combined premiums. For example, if trade is executed and combined premium is 150, 150*50% = 75 + 150 = 225, which will be the stop loss.


(Prices as of June 28)

Below is the payoff graph of the strategy


(Source: SAS Online)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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