Nifty falls below 22,000; how are index derivatives placed ahead of tomorrow’s expiry?

Selling pressure pushed the Nifty below the psychological mark of 22,000 on February 28. Ahead of the monthly derivatives expiry on February 29, stress was seen at the 22,000 strike, where market participants had the highest open interest positions.

Akshay Bhagwat, Senior Vice President, derivative research, at JM Financial, has a neutral view on the markets. “Despite the Nifty breaching support zones, the market has shown 70 points recovery indicating that there is not strong steam to slippage,” Bhagwat said.

Bhagwat recommends two strategies for the February series expiry, one with a neutral approach and the other for risk- takers.

Neutral strategy

The 22,000 strike has the highest call and put writing activity. At these levels, a straddle of both Buying and Selling Call and Put is recommended giving a 200 points premium break even for the expiry. This strategy is profitable for the broad 21,800-22,200 range.

Directional strategy

For traders who prefer directional strategies, Bhagwat recommends taking a short position if the Nifty trades below 22,000 in the last half hour of trading on February 28. The market may fall to around 21,900 on the expiry day.

Read more: F&O Manual | Indices under selling pressure, Nifty faces resistance near 22,250

Arun Kumar Mantri, Founder of Mantri Finmart, expects short covering. “The Nifty has reached the options support area of 21,900-22,000 levels on the lower side and is expected to witness some covering on the expiry day towards 22120-22150 where next resistance is placed. For short term, traders may deploy the covered call strategy in Nifty keeping Stop loss below 21930 mark for tomorrow’s expiry trade, ” said Mantri.

Mantri recommends a hybrid covered call strategy:

Buy one lot of Nifty February Futures at 22,010 and Sell one lot of Nifty February 22,150 call at 38

Break-even point: 21,978

Stop loss: 21,930 (spot levels)

Rupak De, senior technical analyst, says the Nifty is likely to expire in the February series at around 22,000.

He recommends a long butterfly strategy:
Buy 1 lot Nifty Feb 22100CE @ 42
Sell 2 lot Nifty Feb 22000CE @ 77
Buy 1 lot Nifty Feb 21900CE @ 130.35
Maximum Risk: Rs.918 Maximum Profit potential: Rs.4083

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