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How to play the Bihar elections
Nifty (8,065.8): Though the medium-term outlook remains positive for Nifty, in the short term, it is expected to swing wildly due to the Bihar polls. The results of the Bihar Assembly election will be declared on November 8. Nifty finds crucial support at 7,950. Even if it breaches this level momentarily, it is likely to rebound. On the other hand, it faces immediate resistance at 8,244 and a major one at 8,397. A close above this level can take the index to 8,845 levels.
F&O pointers: The rollover of open positions was quite healthy — in excess of 75 per cent. Option trading indicates a range of 8,300-8,000 for the Nifty.
Opportunity: The Nifty is expected to swing in three ways after the Bihar election. A thumping victory by the BJP can trigger a strong rally. If BJP loses, the Nifty can fall in the short term. However, if the party wins by a simple majority, the market may move in a narrow range.
Strategy: Traders can consider long strangle on Nifty options. This can be initiated by buying 8,300 call and 7,800 put. They closed with a premium of ₹51.60 and ₹59.50 respectively. This strategy will involve an initial outgo of about ₹8,332. This would be the maximum loss one can suffer if the Nifty moves in a narrow range.
On the other hand, the profit is unlimited if the Nifty moves either up or down — a close below 7,700 or above 8,400. Traders can consider exiting the position if the loss mounts to ₹2,800.
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