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Options Strategy: Weekly Options Strategy: Nifty50 Resilience, Choose Bullish Back Spread

Critical position:

Short Nifty 21 Jul 2022 15900 Set at 60 & Buy 14 Jul 2022 15600 Set at 15, Total Premium Cash Flow = 45; Indicators: 1; Stop Loss: 65 (Each lot 1)


Theoretical basis


Nifty lost nearly 1% last week as Tech heavyweights came under pressure after their quarterly results were lower than expected. Meanwhile, the broader markets have performed relatively better with Pharmaceuticals, Automotive and FMCG stocks leading the way. Increased pressure on the markets has been experienced after 4 decades of US inflation. However, Nifty was able to hold 15900 levels and until these levels hold, we remain bullish in the coming sessions.

From a data perspective, while the Put writes are relatively higher than the strike Call orders with the highest Put base set at ATM 16000 strike, we expect a rally towards 16500 if Nifty can hold 15900. Trend will be changed if Nifty is closed below 15900 and in that scenario we could see Nifty move towards 15600 in the coming sessions.

FII’s net short positions have once again risen above 1,000 contracts and most of these positions were formed after US inflation data. Therefore, we think these positions are very vulnerable to cover and Nifty could see further recovery ahead of the key events coming up in the second half of the month.

The volatility index closed the week at its lowest level since January, below 18 levels. Furthermore, despite the recent weakness seen in Banking and Technology space, Nifty was largely able to keep its level. Therefore, while stock-specific volatility is likely to remain high in the resulting season, broader weakness is unlikely until the VIX doesn’t break above 20 levels.

Trader will take maximum profit if Nifty closes above 15900 on July 21 expiry.

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