Options trading strategy for Nifty & Bank Nifty for this week

A possible correction in the offing as Nifty witnesses profit booking with fresh short built up at higher levels, declining momentum, and the deteriorating underlying trend strength. Though the overall trend remains intact on the upside, we believe it is time for some overdue price correction.

The price structure of Nifty is forward an upward-sloping channel for which the range at present is 22,900 – 22,000. The prices are just a tad around its March ATH of 22,500. It would be interesting to see if its prices can sustain this level in the next one or two days and revert to upside momentum, or if we are in for further correction to lower levels of 22,240 – 22,100. The upside resistance for Nifty is at 22,900 – 22,850.

The short to mid-term trend for Nifty is positive, with its short-term and mid-term 20- and 50-day MA, respectively, trending up on a rolling basis. This does mean that buying can be seen at 50 MA placed at 22142 and 20 MA placed at 22270. Hence, the overall strategy should be to buy on dips.
On the daily chart, Friday’s correction has eroded gains of the last three trading days, and hence, it would be crucial to watch the initial one-hour price action tomorrow if 22,500 is respected. Any weakness below this level will be capitalised, and we may see a slide to the MA levels shared above.

The fresh short built-up is seen at 22,750 – 22,950 levels as per Weekly and monthly OI analysis while on the downside 22,500 – 2200 points to a possible wall where the index can bounce from.

We are bullish On Bank Nifty with a much better price structure and overall performance in its underlying components. The Lower-level support bank Nifty is placed at 48,300–48,500. We believe Buying between this level should be optimal from a favourable risk-reward point. Only a close below 48,200 would mean a weakness while any reversal between 48,300 – 48,500 can put an upside reversal towards 49,150+ levels.

BankNifty OI analysis of Weekly and Monthly Chain gives a range of 48,000–49,000 but we do believe the upside bias may continue to come in for Banking stocks given its bullish structure. Hence, any weakness in Bank Nifty should be bought.We recommend a Short Strangle on Nifty 25Th Apr Expiry, sell 22200 PE and 22900 CE, a combined premium of 131.3 with SL at 78 RS, and hold till Expiry for Max Profit of 6565.