Deploy Call Butterfly Spread on Nifty Bank to benefit from rangebound trade

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undefined Nifty spot was in consolidation mode last week and was gyrating in a band of 11,650-11,750. It ended the week with a loss of 0.42 percent at 11,710. Bank Nifty band was wide at 29,600 to 30,200 and closed with a loss of 0.39 percent at 30,060.

In the week gone by buying was seen in oil and gas stocks with BPCL up by 3 percent and HPCL and ONGC up by 1-2 percent. Profit booking was seen in FMCG and IT stocks, Britannia was the major loser in FMCG space down by 8 percent followed by Dabur down by 4.5 percent and among IT stocks Hexaware and TCS were major losers both down by 4 percent followed by Infosys and Wipro down by 1-2 percent.

Over the week, significant shorts was seen in selected midcap stocks like PC Jeweller and Jet Airways. PC Jeweller price was down 11.4 percent and OI was up 15.8 percent; whereas Jet Airways price was down 26 percent and OI was up 18 percent.

A mix of long unwinding and short buildup were seen in NBFC stocks as significant short was seen in Indiabulls Housing Finance as price was down 4.5 percent and OI was up 5 percent.

Future data of Indices depicts long unwinding in both Nifty and Bank Nifty.

Due to the uncertainty over Lok Sabha election, India VIX, the fear gauge for Nifty, was up 230 basis suggesting of volatility in this week. Nifty PCR stands as 1.6 and Bank Nifty PCR stands at 1, keeping room open on the upside.

Nifty options data shows for weekly expiry (May 9), 11,700 could act as strong support as highest Put OI and heavy call writing was seen at 11,800CE (~2.2mn shares), which can act as immediate resistance.

For Bank Nifty options, both call and put are equally congested. 29,900PE can act as immediate support and on the upside, congestion is seen 30,400-30,500CE that can act as immediate resistance.

With Put congestion around 29,900PE-30,000PE acting as a support and immediate resistance at 30,400-30,500, Bank Nifty could be trading in the range of 30,000-30,400 in upcoming expiry, so a bullish to rangebound strategy Call Butterfly Spread is suggested.

Call Butterfly Spread is a bullish to rangebound strategy that offers decent reward to risk at low cost. In this strategy, we need to buy 1 ATM Call, Sell 2 OTM Calls near target level and Buy 1 further OTM call to hedge the risk. Maximum profit in this strategy is at Call written strike. As theta decay is fast in weekly options, it is ideal for deploying Call Butterfly Spread.

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