It formed a bearish candle on the daily frame and closed below the 24,500 zone with a loss of around 310 points.
“Now, till it (the index) falls below 24,500 zone, weakness towards 24,350 and then 24,200 zone may be seen, while barriers are placed at 24,750 and then 24,850 zone,” said Chandan Taparia, senior VP, Equity Vaccinal Dairy. , Sr. V.P. Management at Motilal Oswal.
On the option front, the maximum call OI is at strike 25,200 after 25,200 while the maximum put OI is 24,000 at strike 23,500. Call writing is seen at 24,600 then 24,700 strike while put writing is seen at 24,400 then 24,300 strike.
“Options data suggests a broad trading range between 24,000 to 25,000 zone and an immediate range between 24,300 to 24,700 levels,” Taparia added.
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Chandan Taparia believes that one can adopt a negative bias and expect any small bounce to be sold for a downside move towards the 24,300-24,200 zone.
One can start bear put spread strategy to benefit from bearish trend along with market volatility.
Bear put spread
Traders use this strategy when they expect the price of the underlying to decline in the near future. This involves buying and selling put options with the same expiry but different strike prices.
Puts are bought at a higher strike price and sold at a lower price. A higher priced put is in-the-money (ITM) while a lower priced put is an out-of-the-money option. This strategy results in a net debit for the trader as the price of the ITM put adjusts to cash flow by shorting the OTM put.
(Prices till 22 October)
Below is the payoff graph of the strategy:
(Source: Motilal Oswal)
(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)
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