Today is the expiry of February 17 series contracts.
Bank Nifty has seen aggressive selling in the last few days, which has continued in today’s session. Bank Nifty Futures took support at 37,500 levels but has seen selling pressure on rise. It is trading 230 points higher at 37,678 levels.
Options Update
The February series options of the Bank Nifty has a significant base at 38,000 and 37,800 call options suggesting a resistance for the index at higher levels.
For today’s weekly expiry, further additions were seen at 37,700 call options. As per the options data for this week, immediate support and resistance for Bank Nifty stands at 37,100 and 38,900 levels.
Expiry Action
If you look at the Bank Nifty Futures chart on your Upstox Pro Web platform, you can see the VWAP for Bank Nifty Futures is at 37,758 levels, which is 80 points higher than its current trading levels.
Let us understand what VWAP stands for. The VWAP is the Volume Weighted Average Price. It is the average price of the total volume traded to determine the demand for a stock in terms of both volume and price.
Futures Action
With a falling trend and Bank Nifty trading below its VWAP* levels, futures traders tend to create short positions with a stop-loss at the VWAP levels.
With the ongoing negative trend and Bank Nifty trading below the VWAP, traders initiate a short position when the MACD line crosses the Signal line and goes below it. This must be clubbed with the indicators like MACD**. (This study is also available on your Upstox Pro app/web platform).
MACD stands for Moving Average Convergence Divergence. It is widely considered to be a momentum indicator and comprises two lines: Signal line and MACD line. Traders initiate long positions when the MACD crosses above its signal line. Once the MACD crosses below the signal line then implications for the price are negative.
Options Action
Options traders prefer to buy an ATM (at-the-money) put option and tend to hold the position till Bank Nifty trades below the VWAP levels.
For instance, the February 17 expiry 37,700 put option is trading at ₹70. Traders who have a bearish view will buy 1 lot of this put by paying ₹1,750 (25 * ₹70) and hold till Bank Nifty trades below the VWAP levels of 37,758. The break-even for this position is calculated as Strike Price - Premium Paid, i.e. 37,700 - ₹70 = 37,630.
For example, if Bank Nifty falls further and expires at 37,500, the option price will be ₹200 and the trader will make a profit of ₹130 per share or ₹3,250 per lot (25 * ₹130). If Bank Nifty expires above 37,700, then the trader will make a loss of ₹1,750 which is the entire premium paid to buy the option.
We hope this strategy was simple and easy to understand. You can try spotting it on charts and see if you are able to identify levels.
We’ll bring you a lot of strategies which will help you to identify trade setups easily.
About the author: Kush Bohra is a SEBI-registered investment advisor and an F&O expert.
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Disclaimer
Derivatives trading must be done only by traders who fully understand the risks associated with them and strictly apply risk mechanisms like stop-losses.
We do not recommend any particular stock. The stock names mentioned in this article are purely for showing how to do analysis. Take your own decision before investing.
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