Nifty options strategies to play the Union Budget

As uncertainty about the market’s direction heightens ahead of the Union Budget on Saturday, analysts suggest traders could use a mix of Nifty options to bet on the event. Volatility Index, or VIX, is at 16.80, it’s the highest level in the last three months. VIX has risen from 10 to 17 in over a month as option premiums have climbed up due to heightened worries about the Budget. Here are some of the strategies analysts are suggesting with the Budget in mind:

AMIT GUPTA
HEAD-DERIVATIVES, ICICI SECURITIES

NIFTY SHOULD move towards 12,500 in the coming weeks. One can adopt the call ratio strategy to ride the gradual upsides with limited risk on declines. In this strategy, 1 lot of Nifty Feb 12,100 call option can be bought at Rs 180-185 and 2 lots of 12,500 Feb Call options can be sold at Rs 50-55. The net premium outflow is approximately Rs 75, which is the maximum loss if the index declines. The strategy gains Rs 325 if it reaches 12,500. The strategy remains profitable till the Nifty reaches 12,825.

CHANDAN TAPARIA
DERIVATIVES & TECHNICAL ANALYST, MOTILAL OSWAL FINANCIAL SERVICES
Scenario 1: Major medium-term trend is positive and expecting a move towards the 12,500-12,600 zone

A BULL CALL SPREAD on Nifty monthly options is one of the strategies that traders can play ahead of the upcoming Union Budget. It consists of buying one monthly Feb 12,200 call option at Rs 141 and selling one lot of 12,500 calls at Rs 50. The net premium outflow is Rs 91. Here the breakeven point is 12,291. If the Nifty goes above 12,291, the reward would be Rs 15,675, else the maximum loss is Rs 6,825.

Scenario 2: To hedge the portfolio ahead of Budget volatility till medium-term support of 11,700 zone
A BEAR PUT SPREAD in which one can buy one lot of Nifty 12,000 put at Rs 199 and sell one lot of Nifty 11,700 put at Rs 98. Here the net outflow is Rs 101 and breakeven point is 11,899. If the Nifty goes below 11,899, the gain would be Rs 14,925 with a maximum risk of Rs 7,575 to hedge the downside till 11,700.

RAJESH PALVIYA
DGM – RESEARCH, AXIS SECURITIES

A TRADER CAN
Buy a Nifty bull call ladder strategy by buying Nifty 12,100 call at Rs 120 and selling Nifty calls of 12,300 and 12,500 at Rs 52 and Rs 21, respectively. In this strategy, if the Nifty goes above 12,653, the gain would be Rs 12,653. Similarly, in case the Nifty crashes below 12,147, trader would lose a maximum Rs 3,500.

Newsletter Subscription

Sign Up to enjoy top Finance Articles and Insights Delivered to your inbox.
  • Programic Asia Pvt Ltd may keep me informed with eMails about cfoengage.com & finance newsletters. See our Privacy policy for more details