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Yesterday, the market experienced significant selling pressure, with over 80% of NSE500 stocks closing in the red. The IT sector was the only exception, as the selling was widespread across other sectors. The Nifty50 index declined by around 0.
90%, ending just above the critical swing low of 24,694 established on October 7th. Earlier this week, a brief pullback took the index up to the 25,200 level, but a lack of follow-through at higher levels dampened sentiment, leading to renewed selling pressure. “If the Nifty breaks below the 24,690 swing low, the short-term trend is likely to turn Bearish, potentially driving the index down to the 24,300–24,000 range,” said Sahaj Agrawal, Senior Vice President: Head of Derivatives Research at Kotak Securities .
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com View Program PCR OI is at 0.56, which indicates the dominance of call writers in the market. “Taking into account the current market conditions and OI data, the short-term outlook for the week ahead looks challenging for Bulls,” Agrawal added.
A breach below the 24,690 level on Nifty shall open gates for further downfall up to 24,300 and below levels, he added. In this situation, Sahaj Agrawa believes that a Bear Put Spread can be an effective approach for the week ahead. Bear Put Spread Traders use this strategy when they expect the price of an underlying to decline in the near future.
This involves buying and selling put options of the same expiry but different strike prices. A higher strike price put is bought and a lower priced one is sold. The higher priced put is in-the-money (ITM) while a lower priced one is an out-of-the-money option.
This strategy results in a net debit for the trader as the cost of the ITM put gets adjusted with the cash flow from shorting the OTM put. ETMarkets.com (Prices to be taken as of October 18 closing) Below is the payoff graph of the strategy: ETMarkets.
com (Source: Kotak Securities) ( Disclaimer : Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel ).
