Strategy Positions:
Buy 23rd March Nifty 17200 Call at 84-86 & Sell 23rdMarch 17350 Call at 35-36, Target: 140, Time Frame: weekly expiry.
Rationale
- Global jitters triggered further weakness and Nifty moved below 17,000 levels almost testing its October lows. Nifty lost nearly 2.5% last week amid broader market weakness where midcap and small cap indices moved to their lowest levels seen since July 2022. Going ahead, we believe closure among Call writers is crucial for recovery to sustain. Considering the US Fed meeting this week, volatility is likely to continue in the risk assets. Nifty is likely to witness a short covering trend only if it sustains above 17250 levels.
Due to recent weakness, another round of aggressive Call writing is visible across the strikes and strikes ranging from 17000 to 17200 all holding significant Call open interest of more than 80 lakh shares each. Despite the highest Put base at ATM 17000 strike, we believe closure among Call strikes is crucial for sustainable recovery.
Moreover, due to global weakness, FIIs turned further aggressive and their net shorts in Index futures has reached one of the highest levels historically. Only during Covid times, we have seen higher net shorts from FIIs. Hence post Fed policy, if Nifty sustains above 17250 a considerable up move of another 400-500 points can be expected due to short covering.
We believe next week will also remain volatile amid central banks rate decisions. Considering significant high shorts prevailing in the BFSI space, we expect them to lead the way of recovery if any. Also outperformance is likely to be seen in the Pharma space considering ongoing long accumulation in sectoral heavyweights.
As we are keeping our view moderate bullish above 17250 levels hence we advise traders to go for Bull Call spread option strategy. It is a 2 leg option strategy and consists of buying one ATM strike of Call option and selling one higher strike of Call option (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
