Nifty50 Update
Today is the expiry of March 3 series contracts.
Nifty50 has seen aggressive selling in the last few days, which has continued in today’s session as well from higher levels. Nifty Futures took support at 16,600 levels but has seen constant selling pressure on rise. It is trading 30 points higher at 16,643 levels.
Options Update
The March 3 series options expiring today have a significant base at 16,800 and 16,700 call options suggesting a resistance for Nifty at higher levels.
For today’s weekly expiry, further additions were seen at 16,600 call options. As per the options data for this week, immediate support and resistance for the Nifty50 stands at 16,300 and 17,000 levels.
Expiry Action
If you look at the Nifty Futures chart on your Upstox Pro Web platform, you can see the VWAP is placed at 16,672 levels, which is 29 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 Nifty Futures 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, 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 Nifty Futures trades below the VWAP levels.
For instance, the March 3 expiry 16,600 put option is trading at ₹45. Traders who have a bearish view will buy 1 lot of put option by paying ₹2,250 (50 * ₹45) and hold till Nifty trades below the VWAP levels of 16,672. The break-even for this position is calculated as Strike Price - Premium Paid, i.e. 16,600 - ₹45 = 16,555.
For example, if Nifty Futures falls further and expires at 16,500, the option price will be ₹100 and the trader will make a profit of ₹55 per share or ₹2,750 per lot (50 * ₹55). If Nifty Futures expires above 16,600, then the trader will make a loss of ₹2,250 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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