Short Nifty 14 July 2022 16200 Call at 140 & short 14 July 2022 16200 Put at 123 (Total premium = 263); Target: 10; Stop loss: 460 (1 Lot Each)
Rationale
The Nifty recovered another 3% last week with broader market participation ahead of the quarterly earnings season. As expected, Nifty did not move below its Put base of 15,600 and even tested 16,200 levels. Banking and FMCG stocks led the recovery, and we expect the current recovery to continue towards 16,500 levels in the coming sessions.
From data perspective, both Call and Put open interest for the coming weekly settlement is visible at ATM 16,200 strike, suggesting some consolation. However, with the recent up move, Call writers seem to be stuck, and closure among them will continue to provide support. Hence significant declines may not be seen in the near term.
Also, FIIs’ net shorts have declined considerably last week, and the net shorts in index futures have declined to near 71,000 contracts from over 1 lakh contracts seen last week, suggesting ongoing short covering. At the same time, net longs in stock futures continue to increase, suggesting closure of shorts ahead of results.
We feel in the coming days, 500 point of range bound sessions cannot be ruled out after the consecutive gains. We feel traders can go for a short straddle of ATM 16,200 strike where profit will be made within the range of 15,900 to 16,500. However, one needs to be careful on both sides also as strategy will start making a loss if the Nifty moves above or below the given range.
Traders would be in maximum profit if Nifty closed near 16,200 levels on 14th July expiry.
Pay-Off Diagram:
(Raj Deepak Singh is the Analyst – F&O, Currency, and Commodity at ICICIdirect)