Election Strategy: How Nifty, Nifty Bank traders can hedge portfolios

The major trend of the market remains intact-to-positive till it holds the formation of higher lows on a monthly scale. After hitting a new peak at 23,110 on Monday, the index consistently fell and ended in red each day throughout the week, hitting a low below the 22,500 mark on Thursday.

The index has been making for the last seven months and even after the short-term , the major trend of the market remains intact-to-positive till it holds the formation of higher lows on a monthly scale.

However, after hitting a new peak at 23,110 on Monday, the index consistently fell and ended in red each day throughout the week, hitting a low below the 22,500 mark on Thursday.

Given this volatility, has suggested strategies for and to ride the waves.

Nifty

Motilal Oswal has suggested strategies for Nifty traders in three scenarios after the election results.

In a bullish scenario, traders can play the highly bullish stance with the view of 24,000 levels.

Strategy: ( : 27th June, 2024)

Buy Nifty 24000 Call @ 110 : 27th June 2024 Monthly expiry

Max Risk : Rs 2750/-

BEP on expiry basis : 24110

Max Reward : Unlimited above 24110

(Source: Motilal Oswal)

In a range-bound scenario, wherein Nifty is likely to oscillate between 21,780 and 23,220 zones, traders can consider deploying to get the benefit of and fall in volatility.

Strategy: Monthly Expiry : 27th June, 2024

Sell 1 lot of 22500 Call @ 660

Sell 1 lot of 22500 Put @ 460

Buy 1 lot of 23500 Call @ 220

Buy 1 lot of 21500 Put @ 180

Margin Required : Rs 35,000

Net Premium Received : 720 Points (Rs 18,000)

Max Risk : 280 Points (Rs 7,000)

Profit will be made if the price remains between 21,780 and 23,220.

(Source: Motilal Oswal)

In the bear case scenario where Nifty corrects by 7-8% post the election outcome, a ‘bear put’ strategy may be considered for deployment. One can hedge against the corrective move till 21,000 zones with hedging cost of 1.50% till the end of June 2024.

Strategy: (Monthly Expiry : 27th June, 2024)

Buy 1 lot of 22500 Put @ 470

Sell 1 lot of 21000 Put @ 120

Margin Required : Approx. Rs 20,000/- per lot

Net Premium Paid : 350 Points

Max Risk : 350 Points (Rs. 8,750/-) if Nifty moves higher

Max Reward : 1150 Points (Rs. 28,750/-) if Nifty goes below 21000 zones

Risk : Reward : 1 : 3.28

(Source: Motilal Oswal)

Bank Nifty

Motilal Oswal built a range-bound scenario for Bank Nifty remaining in between 46,750 to 50,250 zones wherein an Iron Butterfly strategy can be implemented to get the benefit of Theta decay and fall in volatility.

Strategy: (Monthly Expiry : 27th June, 2024)

Sell 1 lot of 48500 Call @ 1550

Sell 1 lot of 48500 Put @ 1050

Buy 1 lot of 51000 Call @ 500

Buy 1 lot of 46000 Put @ 350

Margin Required : Rs.50,000

Net Premium Received : 1750 Points (Rs. 26250)

Max Risk : 750 Points (Rs. 11250)

Profit will be made if the prices remain in between 46,750 to 50,250 zones.

(Source: Motilal Oswal)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

Source: Stocks-Markets-Economic Times