Bank Nifty Update
Today is the expiry of February 24 series contracts.
Bank Nifty has seen aggressive selling in the last few days, which has continued in today’s session as well. The Bank Nifty Futures took support at 35,850 levels but has seen selling pressure on rise. It is trading 1,386 points lower at 36,045 levels.
Options Update
The February series options expiring today have a significant base at 36,500 and 37,000 call options suggesting a resistance for Nifty at higher levels. Today, further additions were seen at 36,500 call options. As per the options data for this week, immediate support and resistance for Bank Nifty stands at 35,500 and 37,300 levels.
Expiry Action
If you look at the Bank Nifty Futures chart on your Upstox Pro Web platform, you can see the VWAP for the Bank Nifty is at 36,240 levels, which is 195 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 the Bank Nifty trading below its VWAP* levels, futures traders tend to create short positions with a stop-loss at the VWAP levels.
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 24 expiry 36,000 put option is trading at ₹180. Traders who have a bearish view will buy 1 lot of this put by paying ₹4,500 (25 * ₹180) and hold till Bank Nifty trades below the VWAP levels of 36,240. The break-even for this position is calculated as Strike Price - Premium Paid, i.e. 36,000 - ₹180 = 35,820.
For example, if Bank Nifty falls further and expires at 35,500, the option price will be ₹500 and the trader will make a profit of ₹320 per share or ₹8,000 per lot (25 * ₹320). If Bank Nifty expires above 36,000, then the trader will make a loss of ₹4,500 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.