Today is the expiry of March 17 series contracts of Nifty50.
The Nifty Futures opened higher and crossed the 17,300 mark. It is trading 314 points higher at 17,332 levels.
Options Update
The March series options expiring today have a significant base at 17,200 and 17,300 put options suggesting a support for Nifty at lower levels.
For today’s weekly expiry, further additions were seen at 17,200 put options. As per the options data for this week, immediate support and resistance for Nifty stands at 16,900 and 17,700 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 17,276 levels, which is 46 points lower 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 stock demand in terms of volume and price.
Futures Action
With a rising trend and Nifty50 Futures trading above its VWAP* levels, traders tend to create long positions with a stop-loss at the VWAP levels.
The traders initiate a long position when the MACD line crosses the Signal line and goes above 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) call option and tend to hold the position till Nifty trades above the VWAP levels.
For instance, the March 17 expiry 17,300 call option is trading at ₹45. Traders who have a bullish view will buy 1 lot of this call option by paying ₹2,250 (50 * ₹45) and hold till Nifty trades above the VWAP levels of 17,276.
The break-even for this position is calculated as Strike Price + Premium Paid, i.e. 17,300 + ₹45 = 17,345.
For example, if Nifty rises further and expires at 17,400, 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 expires below 17,300, 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.
If you haven't already done so, 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.
Download the Upstox App Today