Buy Nifty Jun 23, 2022 15,300 Put at 155 and Short Jun 23, 2022 at 15,000 Put at 68, Short Jun 23, 2022 14,800 Put at 40. (Total Cost = 47).
Risky assets came under heavy pressure last week as the Nifty fell in line with global indices with a loss of nearly 6%. Excluding FMCG, nearly all sector indices lost more than 5%, with deep cuts in the technology and metals sectors. Broader markets have also seen a sharp decline as the small cap index lost another 8%. Going forward, we think any short-covering is likely in settlement week and until then a major recovery seems unlikely.
From a data perspective, FII’s net short position has again risen sharply to its highest level since March 2020, along with an increase in short positions in equity futures. Therefore, it is likely that there is a short coverage towards the settlement. Nifty has fallen more than 2,000 points in the last three occasions since October. For example, levels near 14,600-14,800 can be viewed from a reversal point of view.
Due to sharp declines, option writers have held up during the Put strikes and the main Put base is still placed at 15,500 and 16,000 strikes for monthly settlement. On the other hand, new call writing is visible at 15,700 strike, which was the recent outage level. Therefore, any short-term recovery can be capped at 15,700.
Therefore, since we keep our opinion bearish, we advise traders to opt for the Bearish Put Ladder option strategy. It is a three legged option strategy and consists of buying one ATM strike of Put option and selling two lower strikes of Put options.
If we keep the target between 14800 and 15000 we think traders can opt for the Put ladder strategy where maximum profit will be made between 14800 and 15000. However, one has to be careful at the bottom as the strategy starts to make a loss if the handy goes under 14500 in the current settlement.
The trader will make a profit if Nifty stays or expires between the levels of 14,550 to 15,225.