Smart Weekly Strategy: Weekly Options Strategy: While momentum remains bearish, go for the bearish sell ladder


Strategic positions:
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).

Reasoning

Risk assets came under heavy pressure last week and the Nifty fell in line with global indices with a loss of almost 6%. Apart from consumer staples, nearly every sector index lost more than 5%, with deep declines in the technology and metals sectors. Broader markets also fell sharply, with the small cap index losing another 8%. Going forward, we think any short-term hedging is likely during settlement week and until then, a major rally seems unlikely.

From a data perspective, the net short position of FIIs again rose sharply to the highest levels since March 2020, alongside an increase in short positions in equity futures. Therefore, a short hedging move towards settlement is likely. Nifty has dropped over 2,000 points in the last three chances seen since October. So, levels near 14,600-14,800 can be looked at from a reversal perspective.

Due to steep declines, option sellers resisted sell strikes and the main sell base is still placed at 15,500 and 16,000 strikes for monthly settlement. On the other hand, a new call write is visible at 15,700 keystrokes, which was the recent breakdown level. Therefore, any near-term rally could be limited to 15,700.

As we maintain our bearish view, we advise traders to opt for the Bearish Put Ladder option strategy. This is a three legged options strategy and involves buying one put exercise option at the ATM and selling two lower put exercise options.

Keeping the target between 14800 and 15000, we believe traders can opt for the Put ladder strategy where maximum profit will be made between 14800 and 15000. However, care should be taken on the lower side as the strategy will start to make a loss if the Nifty moves below 14500 in current settlement.

The trader will take profit if Nifty stays or expires between the 14,550 to 15,225 levels.

ETMarkets.com

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