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Nifty to trade in 16000-17000 with negative bias, use Iron Butterfly strategy; Maruti, Tata Motors top bets

Nifty Put options OI distribution shows that 16500 has highest OI concentration followed by 16600 & 16200 which may act as support for current expiry.

Nifty, Bank Nifty

By Rajesh Palviya

On the weekly chart, Nifty 50 index formed a long bearish candle forming lower High-Low compared to previous week indicating weakness at current levels. The index is moving in a Lower Top and Lower Bottom formation on the weekly chart indicating negative bias. The chart pattern suggests that if Nifty crosses and sustains above 16800 level it would witness buying which would lead the index towards 17000-17400 levels. However if the index breaks below 16400 level it would witness selling which would take the index towards 16200-16000. 

For the week, we expect Nifty to trade in the range of 17000-16000 with a negative bias. The daily and weekly strength indicator RSI is moving downwards and is quoting below its reference line indicating negative bias. 

Nifty Derivative Outlook 

Nifty futures closed at 16656 on a positive note with 4.16% decrease in the open interest indicating Short Covering. Nifty Futures closed at a discount of 27 points compared to the previous day discount of 35 points. India VIX index is at 26.74 v/s 31.98. Nifty ATM call option IV is currently 27.02 whereas Nifty ATM Put option IV is quoting at 29.90. Index options PCR is at 1.02 v/s 0.98 and F&O Total PCR is at 0.84. Nifty Put options OI distribution shows that 16500 has highest OI concentration followed by 16600 & 16200 which may act as support for current expiry. Nifty Call strike 17000 followed by 16500 witnessed significant OI concentration and may act as resistance for current expiry.

Bank Nifty Outlook

Bank Nifty started the week on a positive note and traded with extreme volatility on either side throughout the week. Bank Nifty closed at 36431 with a loss of 1168 points on a weekly basis.  On the weekly chart the index has formed a small Bearish candle with shadows on either side indicating indecisiveness amongst participants regarding the direction. 

The index is moving in a Lower Top and Lower Bottom formation on the daily chart indicating a down trend. The chart pattern suggests that if Bank Nifty crosses and sustains above 36800 levels it would witness buying which would lead the index towards 37400-38000 levels. However if the index breaks below 36000 level it would witness selling which would take the index towards 35500-35000 levels. For the week, we expect Bank Nifty to trade in the range of 37000-35000 with mixed bias. The daily and weekly strength indicator RSI is in negative terrain and are below their respective reference lines indicating negative bias. 

Bank Nifty Derivative Outlook

Bank Nifty closed at 36422 on positive note with 13.26% decrease in open interest indicating Short Covering. Bank Nifty Futures closed at a discount of 25 points compared to the previous day discount of 147 points.

Bank Nifty Put options OI distribution shows that 36000 has highest OI concentration followed by 36500 & 36300 which may act as support for current expiry. Bank Nifty Call strike 36500 followed by 36000 witnessed significant OI concentration and may act as resistance for current expiry.

Sectors and Stocks to watch this week

We expect Automobiles, IT, Real Estate and NBFC sectors to do well in the near-term. One can focus on stocks like Maruti Suzuki, Tata Motors, Infosys, Tech Mahindra, DLF, Godrej Properties, Housing Development Finance Corporation, Kotak Mahindra Bank as these are likely to do well in near term.

Nifty 50 trading strategy for this week

The strategy which we are suggesting for the week with expiry schedule on 3rd March 2022 is IRON BUTTERFLY, which involves Selling of one lot of Nifty 16,650Call @ 236 & Selling of one lot of Nifty 16,650 Put @ 244 and simultaneously buying one lot of 17,150 Call @ 46 & buying one lot of 16,150 put @ 101. Both risk and reward in this strategy are limited and the gains in the strategy will be accrued between two levels i.e 17,000 on upside & 16,300 on downside. The assumption for this strategy is that, Nifty is likely to remain-trade & conclude weekly expiry in the range of 17,000 to 16,300.Maximum profit of Rs 16,650/- will happens if the Nifty closes/expires at 16,650.On the other hand if Nifty expiry close is above 16,983 (upper bep) or below 16,317 (lower bep) then maximum loss incurred will be Rs 8,350/-

(Rajesh Palviya, VP – Research (Head Technical & Derivatives), Axis Securities. Views expressed are the author’s own.)

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