Initiate ITM short straddle on call side if Nifty sees gap-up opening

Bank Nifty saw a huge shorting of the 41,500 PE and an unwinding of the 41,500 CE which also made Bank Nifty move up in the later part of the day.

After opening in the red, the market staged a recovery and the Nifty index rose about half a percent. A long bull candle was formed on the daily chart. The index witnessed this pattern formation for the second consecutive session. Nifty surpassed the crucial hurdle of the downsloping trend line (connected lower tops) around 17,950 levels and closed higher. This pattern indicates a sustainable upside breakout of the crucial overhead resistance. This is a positive indication, said Nagraj Shetty of HDFC Securities. (Blue bars show volume and golden bars open interest or OI).

On the options front, follow-on Put writing continued from yesterday at the 17,800, 17,900 and 18,000 levels. The 18,000 PE, in fact, saw some late shorting towards the end of the session propelling the Nifty to a strong close. It is interesting to note though that the 18,100 and 18,200 Call writers did not unwind their positions even after the 100-point rally in Nifty, signalling the presence of some resistance at this level. “Traders should expect the tug of war to continue for tomorrow’s expiry unless the call writers run for cover due to a gap-up in Nifty. If the gap-up happens and the PCR is also seen trading above the 1.25 mark, traders can look to initiate an in-the-money short straddle on the call side with a bought put option for protection,” said Rahul Ghose, Founder & CEO – Hedged, an algorithm-powered advisory platform. (Bars reflect a change in OI during the day. Red bars show call option OI and green put option OI.)

Bank Nifty saw a huge shorting of the 41,500 PE and unwinding of the 41,500 CE which also made Bank Nifty move up in the later part of the day. “The index on the upside immediately faces a hurdle at 42,000 where the highest open interest is built up on the call side. The index remains in a buy-on-dip mode and once surpasses the level of 42,000 will witness a sharp short covering towards the 43,000-43,500 levels,” said Kunal Shah, Senior Technical Analyst at LKP Securities. (Bars reflect a change in OI during the day. Red bars show call option OI and green put option OI.)

Torrent Power saw a massive long buildup as open interest rose 51 percent. A long build-up is a bullish sign that happens when open interest and volume increase with the rise in share price. Tech Mahindra, Apollo Hospitals, and Power Finance Commission were others that saw a heavy long buildup. (Bars reflect a change in OI during the day. Red bars show call option OI and green put option OI.)

Low-cost carrier IndiGo also saw a short buildup. The short build-up is a bearish sign that takes place when the price of a stock falls, along with high open interest and volume. (Bars reflect a change in OI during the day. Red bars show call option OI and green put option OI.)

Bharat Forge, MCX and Bata India were others that saw a short buildup. (Percentage reflects a change in futures price during the day.)
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