BUDGET DAY OPTIONS STRATEGY- Playing Volatility The Smarter Way

Its budget time, the first major high news based event after the dramatic election results. Expectations are high this time around to deliver the road map for laying out the road map for now famous “ache din aane wale hain” slogan. The budget is expected to give a clear indication of the government intent on lot of key decision issues.

How as a trader are you gearing up for the budget session. How about studying the markets quickly and try and come with a strategy to see if we can be a winner irrespective of the market movement.

Well first lets have a quick look at the NIFTY CHARTS.

NIFTY_ JULY Futures

NIFTY has been seeing the first major fall since the election results were announced in May. Last two sessions also saw a dramatic increase in the volumes.  Critical support as you see now lies in the 7450-7500 zones and markets will look to find some support around that zones.

On the upside critical resistance lies at 7670-7720 zones and a break out above that can see a runaway rally till 7950-8000 levels.

Now what lies ahead or before that. Lets a have a quick look at the options accumulation data. This data suggests that strong resistance lies in the form of huge accumulation at 8000 levels and that is something will take a huge effort to get past. On the downside markets have support at 7400-7500 levels from options OI point of view as well. This completes our price based support analysis as well.

Now what would be a potential options strategy to trade these levels. The fact that VIX is still wandering around 18 levels and looking to break out above that range. We will hence go for a long only strategy here. So here is the strategy outlay: Long 7500 PE, Long 7700 CE.  Total premium paid= 186 INR. Profit per lot if market goes to either 7200 or 8000 = 6000 INR. Here is the graph below on strategy performance against the index

Options Strategy Performance

The author is an independent technical analyst with strong focus on systematic & program based trading & investing solutions. The views presented here are his independent view