Nifty 16 Feb Expiry: Option Selling to Remain Lucrative!

The frontline Nifty 50 index has been trading in a range for a long time now. After decent intraday volatility seen on the budget day, market participants seem to have taken a break. Even the RBI’s 1st MPC decision for the year on 8 February 2023 couldn’t help the market to trend on one side.

This range-bound trading on the index is expected to continue for the upcoming weekly expiry as well. As written in my previous analysis, the budget day’s high and low would remain the key levels to watch out for in case traders are trying to anticipate a trending move. The resistance of 17,972.2, rounding it off to 18,000 and the support of 17,400 - 17,350 are the levels within which traders can find a lot of mean reversion opportunities.

Image Description: Daily chart of Nifty 50 (spot)

Image Source: Investing.com

Mean-reversion trading is done when the underlying security is moving sideways, giving a good risk-to-reward ratio to counter-trend trades, i.e. long on the dips and short on the rallies. This is exactly what’s been going on at the index level for the last many sessions. However, there is no dearth of stock-specific action.

This ~600-odd points range is providing options sellers a good environment to trade. Although it is not easy to short-sell options when India VIX is trading at a very low level of 12.93, by 10:38 AM IST as premiums on the options become less lucrative, the low volatility also means a lower probability of a sharp rally, which is a good thing. So ultimately it is a trade-off between a high probability of low profit and a low probability of high profit.

As per the option chain data, the 18,000 CE for the 16 February 2023 expiry holds the highest open interest (OI) (just like the previous weekly expiry) of 1.39 lakh contracts, making it a strong resistance. This is almost the same level as the budget day’s high. In other words, investors are again expecting this level not to be taken out easily.

On the downside, 17,800 PE has the highest OI of 1.47 lakh contracts, which is intriguing as it’s very close to the Nifty 50 Feb 2023 futures value of 17,870. So this is a high level of confidence coming in from bulls. All in all, this tussle between both bulls and bears might again result in a sideways expiry.

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