What is your positioning now? From the last hour of trading yesterday when we were panicking, we recovered 150 points in the first 5-7 minutes today, the gap increased and then we widened the gap and erased everything. VIX also fell. Current data shows cracks in the long side, the short side, and the VIX, which has risen to 22 but is below 25. What does this mean?
We have seen profit booking decreasing in the last 4-5 trading sessions and support is moving slightly lower. However, we cannot rule out sharp swings of 200-300 points during the day as VIX is at 23-24. Currently, the next support level for the index is the 50-day exponential moving average, which comes slightly below the 22,500 area and the key support level moves to 22,222. This was the previous critical level that helped the market achieve a breakout.
Looking at the data setup, we can see that volatility has decreased slightly, around 4-5%, but new call selling has occurred at higher strike prices.
You can see call records up to 22,700, 22,800, and 23,000. Therefore, it is highly likely that upside potential will be maintained due to call writing.
But at the same time, we’re seeing some writing at 22,300, 22,200. Therefore, the broader trading range of the index is likely to lie between the 22,200 to 22,800 area, according to Options OI. However, for now the weekly setup is looking somewhat negative and the daily trend is making lower highs and lower lows. So, we will use the bounce sell strategy in the market to play the wider range between 22,222 and 22,800 levels until we get above 22,750, 22,800. I want to break it down into two parts and the strategy that you’re actually recommending to your large HNI clients out there today. Trades that are in progress now and need to be cleared during the first trading session when the market opens on Monday, that part comes first. And the actual election trading is from late Monday through the first hours of Tuesday morning. So tell me your first deal. What are you recommending now?
Our proposed strategy proceeds for two reasons. First, the view is that in the case of a theta collapse, the market may be in a wider range, but an IV collapse will occur. Secondly, the setup has been paused for a while and I would like to hedge my position as there may be some profit booking reduction if the market drifts below the key area.
The one we created on June 27th, i.e. on the monthly expiration date, we created one Nifty 1500 points bear put spread.
So this strategy is to buy the 22,500 put and sell the 21,000 put, not expecting it to go down to 21,000, although it could go down if the market corrects. So this is what we are doing.
And the portfolio cost across this strategy will be about 1%. The second strategy we launched was to put and hedge by selling the money call and buying the put beyond the 22,500 call and the 1000 point OTM strike.
In this scenario, you would need to sell 22,500 puts and calls, buy 21,500 puts, and buy 23,500 calls. So we are using two methods. One is to hedge the position and the second is to take advantage of theta collapse.
Now let’s move on to the first question. It’s about what you’ll trade for the next few hours or what you’ll trade to relax. So if you look at the trading setup, if I have to go to the negative side in terms of the market has been forming lower highs, lower lows for the last three or four days, I would go intraday. The trend is downward.
So I’m going to go with 22,300 puts. However, you should keep in mind that holding the position overnight can cause corruption quickly.
But I like to play with a slightly negative trend setup for now. So I would choose 22,300 puts, which is currently close to level 75. I would buy this put near 2230 with the prospect of reaching the 350 mark first.
