Bank Nifty likely to gyrate in narrow range; deploy Iron Butterfly Spread

Reading Time: 3 minutes

undefinedThe market witnessed selling pressure that pushed Nifty lower by 2.1 percent while the open interest (OI) rose 2.2 percent for the week ended July 12. NiftyBank saw a fall of 2.87 percent and OI unwinding of 2.51 percent in the same period.

In the coming week, as many as 12 F&O stocks will declare their results including Tata Elxsi, MindTree, YES Bank, Dabur India, Reliance Industries , and RBL Bank .

Considering earning season, stocks specific move could continue thus trading via option strategy would be prudent.

Options data for Nifty is witnessing a downward shift as Call writers are moving lower towards 11,600-11,700 in the weekly options while 11,500 holds near-term support.

On the upside, resistance is placed at 12,000 strikes while 11,300 PE remains crucial. With a narrow weekly band, the wider monthly band could see either side gyration in the market.

Bank Nifty options depict a broader range of 30,000-31,000, but on an immediate basis, 30,500-30,700 remains an important level to track. The index has taken support near 30,500 with OI accumulation in futures.

Fall in volatility suggests that the market is likely to remain rangebound at the current level. India VIX, the barometer of riskiness, continues to trade lower with a fall of 4.5 percent this week at 12.

Fall in volatility shows stability around the current level. However, any move above 15 should be considered as a sign of cautiousness, else the index could continue to gyrate in the range.

With Bank Nifty witnessing good accumulation in OI in futures and price halting at 30,500 shows that the index could gyrate in coming week with an immediate range of 30,500-31,000.

Thus, low-risk Iron Butterfly Spread is recommended. Iron Butterfly Spread is rangebound strategy that offers decent reward to risk at a low cost.

In this, we are selling near ATM Call and Put and to hedge, we buy OTM Call and Put strike.

As we are trading weekly options, faster time decay will be beneficial to the strategy. Maximum Profit is made if the index closes next to the strike of the option sold.

Learn and read more about oi data from Quantsapp classroom which has been curated for understanding of option moneyness from scratch, to enable option traders grasp the concepts practically and apply them in a data-driven trading approach.