Indian benchmark indices experienced a recovery on Monday, but the Nifty's weekly expiry is set to begin on a volatile note. The Nifty50 closed at 24,211, up a marginal 0.02 percent, while the Nifty Bank index gained 0.15 percent to finish at 58,131.45. The India VIX, a measure of market volatility, spiked sharply by 8.4 percent to 13.28 levels.
This market sentiment is influenced by fresh geopolitical tensions between the US and Iran, which have pushed crude oil prices above $85 per barrel. Rising crude oil prices are a concern for the Indian economy, contributing to retail inflation breaching the Reserve Bank of India's target for the first time in 17 months, potentially signaling future interest rate hikes. Higher oil prices also strain the Indian rupee, dampen fiscal calculations, and pressure corporate profit margins.
Nifty's Technical Outlook and Key Levels
Sahaj Agrawal, Head of Derivatives Research at Kotak Securities, noted Nifty's resilience in defending previous lows around 23,805 and recovering towards the 24,260 mark. Technically, the index is approaching a significant resistance zone between 24,300 and 24,350, where an unfilled gap on the charts is expected to act as an immediate supply area. On the downside, the 24,000-24,050 range serves as the first line of support, with 23,800 remaining a strong secondary support level.
Derivatives Data Suggests Range-Bound Market
Derivatives data also points towards a range-bound market for the upcoming expiry. Open Interest (OI) is heavily concentrated at the 24,500 Call strike and the 24,000 Put strike. This concentration indicates that option writers anticipate these levels will act as strong resistance and support, respectively. Agrawal suggests that while a sharp downside seems limited, the upside may also remain capped due to current market breadth and participation. Consequently, the overall data indicates a likely trading range of 24,000-24,300 for this expiry session, with both boundaries expected to hold on a closing basis.
Kotak's Recommended Short Strangle Strategy
Given this market setup, Kotak Securities has suggested traders consider deploying a short strangle strategy to capitalize on accelerated Theta (time decay) during the final trading session before expiry. The recommended setup involves:
- Selling a 24,500 Call option in Nifty.
- Selling a 23,800 Put option in Nifty.
This strategy is projected to yield a tentative inflow of 17.70. A stop loss for this position is set at Rs 35, with the entire premium decay targeted as the profit objective.