How to trade Nifty on Budget day? Experts share Nifty option trading strategies amid high volatility

During the January series, the Nifty 50 index slipped 1.7%. Nifty rollover is at 77% against the three-month average of 78%.

BSE Sensex and NSE Nifty 50 tumbled in the last six trading sessions, giving up about a month worth of gains. The massive 6.5% fall in benchmark indices Sensex and Nifty indicates hot money exiting the system ahead of the Union Budget 2021, said Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities. During the January series, the Nifty 50 index slipped 1.7%. Nifty rollover is at 77% against the three-month average of 78%. Brokerage and research firm ICICI Direct said that open interest in the Nifty has declined compared to the last month at inception. Now, with the budget just ahead how should traders build their positions?

Here’s what experts are advising traders to do:

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities

“Basic trend of the market is still bullish and along with negative surprise, we may even see some positive announcements. In brief, should be level based buying of calls and put options. Buy call options if Nifty is available to 13900/14000 levels and keep a stop loss at 13500. On the other side, buy put options if the Nifty bounces to 14500 and for that, we need to keep a stop loss at 14750.”

On the Budget day: “Traders should be ready to take profit around 14500 on long positions.  On the other side, take profit on short positions around 13600. Create fresh short positions if the index breaches 13500 levels [on the downside].”

Rohit Singre, Senior Technical Analyst at LKP securities

“The current chart structure shows the index has formed a good base near the 13700-13800 zone, so any dip around said levels can be a buying opportunity; and if current levels are held we may see a good pullback in the index. So one can buy 14000 Call option at CMP 145 for the TGT of 250 keeping stop-loss below 140. Stop-loss should be used strictly as volatility is on the top.”

On Budget day: “Budget day can be super volatility day so traders need to wait for the support levels in Nifty, which is at 13700-13800 zone. Also traders can buy 14000 CE at CMP 145, and sell 14200 CE at CMP 82, with net debit of 63 for the targets of 100/130 with keeping stop out level below 30. (Current expiry one lot).”

Manish Shah, Founder, Niftytriggers

“The expectation is that after the fall seen in Nifty in the last five days there should be a rally which can take Nifty to 14500-14700 before the end of February expiry. We suggest doing a ratio spread for Feb 25 expiry. Buy 1 lot of 14500 CE @ 130 and sell 2 lots of 14900 CE @ 58. The cost of doing this will be around Rs 1050 (75*14) and if Nifty does rally to 14600 the position will make a profit of around Rs 6000. Profit will peak at Nifty reaching 14900. The position will lose money if Nifty moves above 15300.”

On Budget day: “The above position is until the end of the expiry. For those who want to trade the budget day, selling calls and puts at least three strikes out of the money for Weekly expiry should do the trick. Ideally, the trade should be taken around 10.45 just before the start of the Budget speech. There is no guarantee how long the Budget speech will last. The last one by the FM was a marathon. Remember that Budget day is accompanied by huge volatility and it is just one day in a year. Markets will remain open for years to come. Not everyone has the stomach to absorb the volatility that is there on the budget day. It is okay to be a spectator on the budget day and watch the proceedings without active participation. Capital preservation should be the first priority for the trader.”

Abhishek Chinchalkar, CMT Charterholder and Head of Education, FYERS

“On the Budget day as well as a few days following the Budget, volatility tends to be high. This has especially been the case on the prior two occasions, wherein sharp swings were seen not only on the Budget day but also on the next few days following the Budget. Furthermore, over the last few sessions, volatility has also been on the rise outside of India. Given all these, it would be advisable to be on the defensive and hedge your exposure for the short-term. In such an event, one could look out to initiate a Bear Put Spread option strategy on Nifty, by buying an ITM Put Option and simultaneously selling an OTM Put Option having the same expiration.”

(The views and investment tips in this story are expressed by the respective experts of research and brokerage firm. Financial Express Online does not bear any responsibility for their advice. Please consult your investment advisor before investing.)