Nifty 50 Struggling to Rally: A Strategy for F&O Traders!

  • Stock Market Analysis

The Nifty 50 index has been struggling for the last many sessions to pick up a direction. Although the broader trend is still not bullish, the downtrend seems to be abating. This kind of consolidation amid a downtrend is definitely a good sign for bulls as this price action generally leads to a reversal.

In the previous article, I analyzed an options selling strategy (link at the bottom) which is delivering good profits by now as it was more focused on the sideways range of the Nifty 50 index with a hedge above 17,450. As the index is still not going anywhere, here’s another strategy for high-risk traders which can be explored, if their view is bullish from here.

By now it is clear that 16,825 - 16,850 is a good base below which the index is not falling. Keeping this in mind, aggressive traders can start to think of going long on the Nifty 50 index, even before the resumption of the uptrend. However, if the index keeps on trading in a range, essentially going nowhere, traders would lose their precious time. Hence a slightly modified strategy of long futures is converting it into a covered call strategy.

It simply means going long on the underlying (Nifty 50 futures in this case) and short selling an OTM call option. How does that work?

With both positions on (long futures and short OTM CE), traders can minimize the risk on the downside as if Nifty 50 breaks the 16,800, the futures position should be exited with a loss due to an unlimited downside potential. To some extent, the loss would be covered by the short CE as it is a counter trade and would turn profitable.

In the second case, if Nifty 50 goes nowhere, then the OTM CE would still keep giving slight profits on account of theta decay, while the futures position would remain almost breakeven.

In the third possible scenario, if Nifty 50 rallies from here, that would be the best case as the underlying futures would start minting money for you with a potential of unlimited profit, while the loss from the CE would be less due to a lesser delta, resulting in good net profits.

Now the question is which strike price to go short on? Traders can look for any strike above 17,200, as per their comfort but one thing that needs to be considered is CE should be of the current weekly expiry. If that expires worthless after a week, then new CE for the then-current week can be explored to go short.

Read More: Market Flat but Portfolio Bleeding: What’s Happening?

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  • Jp Pandey @Jp Pandey
    Right
    Like 0
  • Arya Prakash @Arya Prakash
    Great articles by Aayush Khanna as always.
    Like 2
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Thanks, Arya.
      Like 0
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  • gopinath Sekar @gopinath Sekar
    Any idea abt nifty and bank nifty coming weeks .??
    Like 0
  • Shesh Kumar Maurya @Shesh Kumar Maurya
    your analysis means a lot for me. thankyou
    Like 2
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      My readers' comments means a lot to me :)
      Like 0
    • GOVINDA CHANDRA DAS @GOVINDA CHANDRA DAS
      this expiry 6 apr 2023 will nifty 50 can go above 17400 upto 17600 for the Friday trading session
      Like 0
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  • jass royal @jass royal
    sir agn strt share charts with your tradeline or any stretgy . thanks
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Haha! sure.
      Like 0
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  • SHYAMLAL PORIKA @SHYAMLAL PORIKA
    Dear Aayush,Please post your analysis on Indian Currency Pairs. Your Insights are very Good.Keep Going.
    Like 2
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Thanks, Shyamlal. I'll try to post more write ups on the currency market
      Like 0
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  • Thulasi dasan @Thulasi dasan
    Instead of Futures, can we go long in options i.e selling ITM put options in far expiry months?? and selling weekly calls
    Like 0
  • Abbas Shakir @Abbas Shakir
    does you make video's on it ?
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Nope.
      Like 0
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  • Nandakumar U @Nandakumar U
    Good inputs, thanks
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Thanks :)
      Like 0
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  • Tech Com @Tech Com
    👍 thanks
    Like 1
  • Sathishkumar Ashokan @Sathishkumar Ashokan
    As usual valuable inputs. Thank you
    Like 2

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