Nifty50 Update
Today is the expiry of March 31 series contracts.
The Nifty50 rallied up to 1.8% this week, aided by positive global cues and a decline in crude oil prices. The Nifty futures recently hit a high of 17,555, but came under selling pressure at higher levels.
Options Update
The March series options expiring today have a significant base at 17,500 and 17,600 call options suggesting a resistance for the Nifty50 at higher levels.
For today’s weekly expiry, further additions were seen at 17,500 call options. As per the options data for this week, immediate support and resistance for the Nifty5o stands at 17,200 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 is currently placed at 17,510 levels, which is 56 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 or a futures contract 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.
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 31 expiry 17,450 put option is trading at ₹15. Traders with a bearish view will buy 1 lot of this put option by paying ₹750 (50 * ₹15) and hold till Nifty Futures trades below the VWAP levels of 17,510. The break-even for this strategy is calculated by subtracting net premium paid from the selected strike price, i.e. 17,450 - ₹15 = 17,435.
For example, if Nifty Futures falls further and expires at 17,400, the option price will be ₹50 and the trader will make a profit of ₹35 per share or ₹1,750 per lot (50 * ₹35). If Nifty Futures expires above 17,450, then the trader will make a loss of ₹750 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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