Nifty support at 15500 for 7 July F&O expiry, use Iron Butterfly strategy for gains; Bank Nifty to remain weak

By Rajesh Palviya

NSE Nifty 50 closed at 15752 with a gain of 53 points on a weekly basis. On the weekly chart, the index has formed a small bearish candle with a long lower shadow indicating buying at lower levels. The chart pattern suggests that if Nifty crosses and sustains above 15800 level it would witness buying which would lead the index towards 16000-16300 levels. However if the index breaks below 15500 level it would witness selling which would take the index towards 15300-15200. For  the week, we expect Nifty to trade in the range of 16200-15500 with mixed bias. The weekly strength indicator RSI is moving downwards and is quoting below its reference line indicating negative bias. 

Nifty Derivative Outlook

The Nifty June rollover stood at 74.81% on Thursday compared to 78.86% on the same day of previous expiry. The Nifty June rollover was lower than its three months average of 79.71% and lower than its six months average of 78.31%; wherein there was unwinding of 1600 shares and Nifty started the July expiry with 127.66 lakh share compared to 127.65 lakh shares of June Expiry. The Market wide June rollover stood at 92.26% on Thursday as compared to 91.41% on same day of previous expiry which is higher than its three months average of 91.04% and higher than its six months average of 90.7%.

Nifty futures closed at 15754 on a positive note with 4.43% increase in the open interest indicating Long Build Up. FIIs were Sellers in Index Futures to the tune of 543 crore and were Buyers in Index Options to the tune of 401 crore, Buyers in the Stock Futures to the tune of 318 crore. Net Sellers in the derivative segment to the tune of 74 crore.

India VIX index is at 21.25 v/s 21.84. Nifty ATM call option IV is currently 15.34 whereas Nifty ATM Put option IV is quoting at 27.13 Nifty Put options OI distribution shows that 15500 has highest OI concentration followed by 15400 & 15700 which may act as support for current expiry. Nifty Call strike 16000 followed by 15800 witnessed significant OI concentration and may act as resistance for current expiry.

Bank Nifty Outlook

Bank Index opened on strong note and traded with extreme volatility on either side however buying support at lower levels pulled index higher to end flat note. Bank Nifty closed at 33539 with a loss of 88 points on a weekly basis. 

On the weekly chart the index has formed a Bearish candle with a  lower shadow indicating buying at lower levels. The chart pattern suggests that if Bank Nifty crosses and sustains above 33800 level it would witness buying which would lead the index towards 34300-34800 levels.  However, if the index breaks below 33000 level it would witness selling which would take the index towards 32600-32200 levels. For the week, we expect Bank Nifty to trade in the range of 34800-33000 with mixed bias. The weekly strength indicator RSI is in negative terrain and sustaining below its reference lines indicating negative bias. 

Bank Nifty Derivative Outlook

Bank Nifty June rollover stands at 87.42% on Thursday compared to 85.47% on the same day of previous expiry which is higher than its Three months average of 87.23% and higher than its six months average of 84.5%; and have witnessed unwinding of 1.29 Lac shares and have started the July expiry with 24.27 lakh shares compared to 25.56 lakh shares of June expiry. 

Bank Nifty closed at 33638 on positive note with 10.92% increase in open interest indicating Long Build Up. Bank Nifty Futures closed at a premium of 99 points compared to the previous day discount of 28 points. 

Bank Nifty Put options OI distribution shows that 33000 has the highest OI concentration followed by 33500 which may act as support for current expiry. Bank Nifty Call strike 33500 followed by 33700 witnessed significant OI concentration and may act as resistance for current expiry.

Sectors and stocks this week

We expect the Automobile, FMCG, Cement, IT and NBFC sectors to likely to show bullishness this week. Stocks like TVS Motor Company, Maruti Suzuki India, Eicher Motors, Mcdowell, Nestle India, ITC, UltraTech Cement, ACC, TCS, Infosys, Bajaj Finance, HDFC Ltd, Adani Enterprises are likely to show bullishness in coming days.

NSE Nifty 50 trading strategy for 7 June expiry 

Nifty in this weekly expiry has highest OI concentration on call side at 16000 strike, while on put side is at 15500 indicating a probable range for the week between 16000 to 15500.Hence the strategy which we are suggesting for the week with expiry schedule on 07th June 2022 is IRON BUTTERFLY, which involves Selling of one lot of Nifty 15,750Call @ 153 & Selling of one lot of Nifty 15,750 Put @ 153 and simultaneously buying one lot of 16,100 Call @ 33 & buying one lot of 15,400 put @ 47. Both risk and reward in this strategy are limited and the gains in the strategy will be accrued between two levels i.e 16,000 on upside & 15,500 on downside. Maximum profit of Rs 11,300 will happens if the Nifty closes/expires at 15,750.On the other hand if Nifty expiry close is above 15,976 (upper bep) or below 15,524 (lower bep) then maximum loss incurred will be Rs 6,200.

(Rajesh Palviya, Vice President  – Research ( Head Technical & Derivatives), Axis Securities. Views expressed are the author’s own.)