Today is the expiry of December 16 series contracts.
Nifty has seen aggressive selling pressure in the last few days, which has continued in today’s session. Nifty Futures took support at 17,200 levels but has seen selling pressure on rise. It is trading 20 points lower at 17,280 levels.
Options Update
The 16 December options expiring today have a significant base at 17,400 and 17,300 call options suggesting a resistance for Nifty at higher levels.
Further additions were seen for today’s weekly expiry at 17,300 call options. As per the options data for this week, immediate support and resistance for Nifty is at 17,200 and 17,300 levels.
Expiry Action
If you look at the Nifty Futures chart on your Upstox Pro Web platform, you can see the VWAP for Nifty is at 17,306 levels, which is 18 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 trading below its VWAP* levels, futures traders tend to create short positions with a stop-loss at the VWAP levels. Usually, buying emerges once the Nifty crosses VWAP and goes higher.
With the ongoing negative trend and 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 a momentum indicator and comprises two lines: the signal line and the MACD line. Traders initiate long positions when the MACD crosses above its signal line. However, once the MACD crosses below the signal line, implications for the price are negative
Options Action
In such a scenario, Options traders prefer to buy an ATM (at-the-money) put option and tend to hold the position till Nifty trades below the VWAP levels.
For instance, the December 16 expiry 17,300 put option is trading at ₹65. Traders who have a bearish view will buy 1 lot of this put by paying ₹3,250 (50 * ₹65) and hold till Nifty trades below the VWAP levels of 17,306. The break-even for this position is calculated as Strike Price - Premium Paid, i.e. ₹17,300 - ₹65 = ₹17,235.
For example, if Nifty falls further and expires at 17,200, the option price will be ₹100 and the trader will make a profit of ₹325 per share or ₹1,750 per lot (50 * ₹35). If Nifty expires above 17,300, then the trader will make a loss of ₹3,250, 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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