Sunday, December 13, 2015

Expect some recovery - NIFTY View For Week 14-18 Dec

In this newsletter read about market mood and how Bank Nifty pair trade made 6% in 13 days. 

Major world markets are trading with weakness. Substantial fall is seen in European and US markets last week. In my last newsletter, I had indicated at Nifty's probable move down to support near 7635. Nifty is now trading near this support. 
What Next? 

Technical Overview: Last week Nifty made high of 7825 and low of 7575. A range of 250 points. Again an extended candle exhibiting negative sentiments. 

However Nifty has been falling for last 8 sessions now, barring that one session on 10 Dec. Nifty is trading in cycle of Lower Top Lower Bottom. However it is currently at its support of 7635-7540. Hence we assume that a Lower Bottom on Nifty chart is about to come at current level. 

Based on above points we may assume that Nifty can see some recovery from current level to form a corrective move.  

However, overall sentiments remain negative. If the corrective move comes, Nifty has immediate resistance near 7728.  

If Nifty breaks 7540, then it would not be good sign for markets. If this level is broken Nifty may see levels of 7300 and then 6800 in few months to come. 

Levels are shown on chart below.

On 27 Nov I traded a Short Strangle in Bank Nifty. This pair has fetched me a return of Rs 4173 per lot, when the pair closed on 10 Dec. Margin required for this pair was approximately 70,000 per lot. Gain of Rs 4173/- with an investment of 70,000 makes it a return of 6% in 13 days.  

This is a conservative way of using Options to trade in Nifty or Banknifty with comparatively lesser risk. 

This is how the trade took place. 
Sell Banknifty 16000 Put @ 91 on 27 Nov 
Sell Banknifty 18000 Call @ 130 on 27 Nov 

Strangles can be used when you believe that underlying will trade within the range for substantial period of time. In above case the range of Banknifty within which it was expected to trade is 16000 and 18000. 
As the time passes Option prices reduce due to time decay.  

On 10 Dec when I felt that India VIX is expected to rise, I closed the trade to encash the profit of 6%. With the rise of India VIX, the Option premiums are also expected to rise. Hence I moved out of the trade. If you check the current premiums of the same pair they have gone up while writing this article on 13 Dec.  

Click here to know how Short Strangles are traded. 

I run a advisory portfolio based on Options Hedging strategies in Nifty and Banknifty. Name of this portfolio is Index Options. This portfolio is designed to earn comparatively conservative returns of 2-5% per month. 

Click here to know more about Index Options portfolio 

Click here to check Index Options past Performance. 

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