How to play Budget week using Nifty options

KS Badri Narayanan | Updated on January 20, 2020 Published on January 20, 2020

The long-term outlook remains positive for Nifty 50 (12,352.35). Only a close below 10,030 will change the outlook negative for the index. If the current trend sustains, Nifty 50 could set a new peak above 13,250 while the index finds an immediate support at 12,020 and the next one at 11,850. With the Budget round the corner, the index may witness heightened volatility.

F&O pointers: The Nifty 50 January futures added fresh long positions on Friday along with rise in underlying price, signalling a positive bias. However, accumulation of open interest was not secular and saw unwinding too in between. Option trading (Jan month) indicates that Nifty is likely to move in a range of 12400-12200. With 12,400-call having highest number of open positions, only a powerful rally could break that level.

Event: The Finance Minister Nirmala Sitharaman will present the Union Budget on February 1 (Saturday). Expectations are running high, with the economy on the downhill and India Inc's confidence at a low level. So, market participants expect a slew of measures from the Government in the Budget. Market will react strongly to any big-bang reform announcements or disappointments.

Strategy: Traders could consider long strangle on Nifty 50. This can be done by using February-6 weekly options by buying Nifty 12,500-call and 12,200-put. They closed with a premium of Rs 121 and Rs 98.35. That mean investors, need to spend Rs 16,451.25, which would be the maximum loss one can suffer and that will happen if the index closes between the strike prices at the time of expiry.

However, profit potentials are unlimited if the index surges in any of the directions. A move above 12,720 or below 11,980 will turn the position profitable. We advice traders to hold the position till the expiry day. This strategy is for traders who have deep pockets and are willing to book loss the entire amount.

Follow-up: Hold Coal India options, which are now in profitable zone.

Published on January 20, 2020
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