Short Nifty 14 July 2022 16200 Call at 140 & short 14 July 2022 16200 Put at 123 (Total premium = 263); Target: 10; Stop loss: 460 (1 Lot Each)
Rationale
With a wider market participation in advance of the quarterly earnings season, Nifty gained 3% more last week. Nifty didn’t move below its put base of 15,600, and even tested 16,200 levels. The recovery was led by FMCG stocks and banking, and we expect that the recovery will continue to 16,500 levels in the next sessions.
From a data perspective, ATM 16,200 strike shows both Call and Put open rates for the forthcoming weekly settlement. This suggests some consolation. With the recent upmove, Call writers seem to have been stuck. They will still be supported by closure. In the short term, however, there may not be any significant declines.
Also, FIIs’ net shorts have declined considerably last week, and the net shorts in index futures have declined to near 71,000 contracts from over 1 lakh contracts seen last week, suggesting ongoing short covering. The net longs of stock futures continues to rise, suggesting that short covering is ongoing.
After the recent gains, we believe 500 point range bound sessions are not out of reach. The ATM 16,200 strike can be used by traders to make a quick profit. Profits will range from 15,900-16,500. But, it is essential to look at both sides as strategy can start losing money if the Nifty moves beyond or below the specified range.
Nifty closing at 16,200 levels by 14 July expiry would make traders the most profit.
Pay-Off Diagram:
(Raj Deepak Singh is the Analyst – F&O, Currency, and Commodity at ICICIdirect)
