Expiry trade setup: Will NIFTY50 defend 200 EMA on closing basis? Here's all you need to know

NIFTY50 closed in green for the third consecutive day despite weak global cues on Wednesday. The index rally of over 100 points was largely led by banking and financial services stocks, which remained the top index movers for the day. The NIFTY Bank index jumped more than 1.4% on Wednesday as key private sector lenders like IndusInd Bank, Axis Bank, ICICI Bank and HDFC Bank rallied more than 3%. On daily charts, the NIFTY50 closed decisively above the 200 EMA levels on Wednesday. As highlighted in Wednesday’s trade setup, the closing above the 200 EMA levels of 23,369 gives strength to the bullish momentum in the markets. Index now faces resistance at previous swing high levels of 23,841. Experts believe, the bullish momentum to continue and the index may hit the previous swing high levels in the recovery rally.

On intraday charts, the NIFTY50 comfortably traded above 20 and 50 EMA levels on 15 15-minute chart. After posting a huge gap-up on Tuesday morning, the index continued its rallying momentum and traded above the 20 EMA till Wednesday.

Options Buildup

On the options front, the highest open Interest on the call side stood at 23,500 levels, indicating a strong resistance. On the downside, the 23,300 strike price holds the highest open interest on the put side, indicating a strong support for today’s expiry.

Bullish outlook

Traders anticipating a bullish outlook for today's expiry can consider doing a long call strategy to capitalise on the bullish trend. Buying an ATM (At the money) call option of 22,400 would set the breakeven at 22,474, which means an 0.16% upside move in the NIFTY50 on the upside could turn the strategy profitable.

Bearish outlook

Traders anticipating a bearish outlook for today's expiry can consider doing a long put strategy. Buying an ATM put option of 23,450 would set breakeven at 22,334. This means a 0.41% downside move from the current level could turn the strategy profitable.

Conclusion

Despite the current setup tilting towards the bullish side, extreme volatility cannot be ruled out on the expiry day. Traders are advised to make a note of this.In simple terms, a long call strategy allows traders to take advantage of rising prices, while a long put takes advantage of falling prices. Options offer the flexibility to navigate different market conditions - bullish, bearish or range-bound. However, past performance isn't a guarantee of future results. Before implementing any strategy, it's important to assess the risks and have a clear plan for managing potential losses.