Nifty Futures Positions: Short The 16,600 on June 9th Call 152 and 16,600 for more information. Put at 150 and buy at 17100 on June 9th. Calls to 14 and 16,100 are accepted. Placed at 23 (1 lot each)
The Nifty50 index continued to recover, with a positive closing for the third week in a row. Short covering in technology heavyweights, as well as buying in Reliance NSE 2.03%, helped Nifty test the 16,800 level. Going forward, we believe the Nifty50 will consolidate and take some time to break through 17,000 levels. We expect 16,300 to act as immediate support on the lower end.
In terms of data, Nifty futures open interest has fallen to around 1 crore shares, down from 1.1 crore shares at the start of the series, owing to ongoing short covering. FIIs, on the other hand, have begun to reduce their long positions again, while their net short positions have increased marginally.
Meanwhile, the highest Call option concentration was at the 17,000 strike, which could be a short-term roadblock. On the downside, a put base at 16,500 should act as a support level for Nifty.
In terms of volatility, both the US and India VIX have moved near their monthly lows, indicating that positive sentiment is building. As a result, major declines appear improbable, and risk-on sentiments should propel the market higher.
Following a nearly 1,000-point rally from the recent low of 15,700, we believe the market will attempt to consolidate in the coming week with a pivot level of 16,500-16,600. Looking at next week’s option open interest, we believe that a shorting iron fly option strategy in Nifty can be pursued with the expectation that Nifty will consolidate in a wider range of 16,300-17,000.
A non-directional strategy is a short iron fly. Because this strategy is bearish on volatility, we use it when we expect a consolidation. It’s a four-leg option strategy that involves selling ATM straddle and buying OTM strangle.
We believe traders can short straddle 16,600 Call and Put and buy strangle of 16,100 Put and 17,100 Call while keeping a safety net of 16,300 on the downside and 16,900 on the upside.
If the Nifty remains or expires between the given safeguard levels, traders will profit. However, the strategy’s maximum loss would be $12,000.