As Nifty's weekly expiry approaches, market experts at Kotak Securities are advising traders to consider a 'short strangle' strategy to capitalize on potential time decay. This recommendation comes amidst a constructive near-term outlook for the Nifty50 index, which recently snapped a multi-day losing streak.
Nifty's Recent Performance and Outlook
The Nifty50 index demonstrated an impressive recovery on Monday, surging 228.50 points, or 0.96 percent, to close at 23,995.95. This rebound was attributed to a de-escalation of West Asia concerns and a fall in crude oil prices, reinforcing a short-term bullish structure. Similarly, the Nifty Bank index also saw significant gains, climbing 393.70 points (0.69%) to finish at 57,087.20. Concurrently, the India VIX, a measure of market volatility, nosedived by 10 percent to 12.66 levels, indicating reduced immediate market apprehension.
Key Levels and Market Dynamics to Watch
According to combined technical and derivatives data, a trading range of 23,800–24,200 is anticipated for today's expiry, with both extremes expected to hold on a closing basis. Immediate support for Nifty is identified near the 23,880 mark, while resistance is projected around 24,120. A sustained move above the 24,030 level could trigger fresh buying interest, paving the way for further upside. Conversely, the 23,880–23,800 zone is expected to provide robust immediate support.
Sahaj Agrawal, Head of Derivatives Research at Kotak Securities, highlighted the Open Interest build-up, noting concentrations at the 23,900 and 24,000 Put strikes. The highest Call writing, he added, is visible at the 24,200 strike. Agrawal stated, "The options data continues to indicate a positive undertone, with put writers maintaining their dominance at lower levels."
Kotak's Short Strangle Strategy
Given the current market setup and the expectation of a range-bound movement into expiry, Agrawal suggests deploying a short strangle strategy. This approach aims to profit from accelerated Theta (time decay) during the final trading session. The specific recommendation involves:
- Selling: 24,250 Call Option
- Selling: 23,750 Put Option
- Tentative Inflow: 16.70
- Stop Loss: Rs 33
- Target: Entire premium decay
Traders considering this strategy should be mindful of the inherent risks associated with options trading and consult with a qualified financial advisor before making any investment decisions.