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stock market strategy: Weekly options strategy: Nifty ladder arbitrage to reduce time costs of buying Calls

Critical position:


Buying Nifty August 18, 17700 Call 100-102; Sold Aug 18, 17900 Call 30-32 and Sell Aug 18, 18000 Call 14-16, Total Premium Line: 55; Target: 245; Stop Loss: 18 (Each lot 1)

Theoretical basis

Smart talk

Nifty continued its momentum and closed the fourth consecutive positive week in a shortened week, adding 1.5%. Once again, the banking space still leads, helping Nifty test 17,700 levels. The broader markets performed similarly, and both the mid- and small-cap indexes gained nearly 1.5% last week. FII remained net bought throughout the week and bought over 7,000 crore as the heavyweights performed better. We expect Nifty to continue its positive short-term trend until it holds above 17500.

From the options space we are seeing the Put strikes continue at ATM and OTM with 17600 Put positions holding the highest open interest while the highest Call OI base is also located at ATM 17700 Data suggests some consolidation will occur in Nifty. However, considering continued buying interest from FII, long positions will remain in place until Nifty is breaking its key deal basis.

Open interest on futures contracts remained as low as 1 crore share and only new long positions were added last week. With open interest falling, a strong move seems unlikely. On the other hand, the banking space has seen significant accumulation over the long term, which has been the impetus for Nifty’s recent up move.

India’s VIX fell sharply last week after US inflation figures due to Nifty could test 17700. From a near 20-level high, it fell to 17.50 as options writers turned to the highs. ATM strike. Going forward, we don’t see much negativity in the data and expect Nifty to consolidate.

We recommend Nifty ladder spreads to reduce the time cost of Call options. The strategy will have open downside risk on the higher side if Nifty moves above the 18143 level.

Pay-Off Diagram:

Payment Scheme-August 815Organ

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