Bank Nifty Update
Today is the expiry of October 28 series contracts.
After a steep rise this month, Bank Nifty has seen aggressive selling in the last few days and that has continued in today’s session too. Bank Nifty took support at 40,000 levels but has seen selling pressure on rise. It is trading 600 points lower at 40,274 levels.
Options Update
The October series options expiring today too have a significant base at 40,500 and 41,000 call options suggesting a resistance for Bank Nifty at higher levels.
For today’s weekly expiry, further additions were seen at 40,300 and 40,400 call options.
As per the options data for this week, immediate support and resistance for Bank Nifty stands at 39,800 and 40,500 levels.
Expiry Action
If you look at the Bank Nifty Spot chart on your Upstox pro web platform, you can see the VWAP for Bank Nifty is at 40,417 levels which is 143 points higher than its current trading levels.
Let us understand what VWAP stands for. The VWAP is a Volume Weighted Average Price. It is the average price of the total volume traded to determine the demand for a stock both in terms of 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. When the Bank Nifty crosses VWAP and goes higher, buying is likely to emerge.
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 are negative for the price.
Options Action
For instance, if the October 28 expiry, 40,300 put option is trading at ₹125. Traders who have a bearish view will buy 1 lot by paying ₹3,125 and hold till Bank Nifty trades below the VWAP levels of 40,417. The break-even for this position is calculated as “Strike Price - Premium paid” i.e. 40,300 - 125 = 40,175. If Bank Nifty expires below this price the trader will make a profit.
For example, if Bank Nifty falls further and expires at 40,000 the option price will be ₹300 and the trader will make a profit of ₹175 per share or ₹4,375 per lot (25 * ₹175). If Bank Nifty rises and expires above 40,300 then the trader will make a loss of ₹3,125, 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 be coming with 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.
If you haven't already, activate the F&O segment on your Upstox account! Click here to begin F&O trading.
Here is a detailed guide on how to activate your commodities/futures/options segments on Upstox. Click here to know more.
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.