Strangle in Nifty options

Traders can initiate a long strangle strategy in Nifty options expiring on January 31.

This strategy can be initiated by buying Nifty 6,000 call and Nifty 5,800 put for the January series. On Friday, 6,000 call closed at Rs 86 and 5,800 put closed at Rs 51.

The total investment for the strategy comes at around Rs 137.

The maximum loss will be the initial investment of Rs 137, and this will occur if the Nifty closes between 5,800 and 6,000 at the time of expiry. It has to be noted that this position has to be closed within two weeks.

Maximum profit is independent of the market movement i.e. the strategy will remain profitable whether the market goes up or down. The flip side of the strategy is that market should not be range bound, it should move unilaterally in one direction. For example the breakeven point are 5,663 (5,800-137) and 6,137 (6,000+137).

In the futures segment, December, January and February futures closed at a premium of 35, 71 and 102 point respectively compared to 40, 71.1 and 100 last week.

In the options segment, for December call series, 6,000 call has the highest open interest (OI) positions (1.12 crore contracts) followed by 6,100 call (78.1 lakh).

For December put series Nifty 5,800 put has the highest OI (92.4 lakh) followed by Nifty 5,700 put (68.9 lakh).

Since OI in the call segment is far higher than the put segment, the gains in the index will be limited.

India VIX, that measures the expected volatility in Nifty, closed at 14.23 compared to 14.96 last week.


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