April 2019 Nifty Options

Howdy!

Before we start analyzing the technical chart of Nifty, let me get the disclaimer out of the way

Options trading involve risk: you may lose more than what you put on the trade. All the trades and commentary on this blog is for informational purposes only. Please do your due diligence and consult a financial advisor before making any trades or investments. The financial advice and opinion in this blog are for educational purposes only. We are not responsible for any loss financial or otherwise.

With that out of the way lets look at Nifty as of 15th March 2019

source: tradingview.com

The market is on a roll literally over the past few weeks! We broke the 11000 mark and is now hovering around 11500.  The upward momentum which started with the US fed decision to pause the rate hike, slowly trickled into global markets and we broke above the long term resistance at 11000.

Ever since we have been in a constant uptrend. Now, given the strong upward move in the markets, we could expect a pullback at some point. However, can we expect a late 2018 mini crash all over again? I`m not sure about that. We could get a slight pullback towards lower 11000's and then most probably head towards the high of  11750. Are these assumptions set in stone? No, to be honest, nothing with the market is 100% certain. What this analysis helps us to have is a frame of mind when considering an options trade.

Trade for April 2019

Given the above analysis, we could consider a few potential trades. My assumption is cautiously bullish. We could expect to have a pullback but may not be as severe as late 2018. This means we could consider

1. Short put vertical:  Sell 10600 Nifty April 25 Put / Buy 10400 April 25 Call: 6.05 credit 

2. Short strangle: Sell 10600 Nifty April Put / Sell 12200 Nifty April Call: 56.05 credit

NOTE: For those who are new to options, a short strangle has theoretically unlimited risk, while for a short vertical the risk is defined. In either case, you should not put more than 25% of your trading account on a single trade as margin. Controlling risk is of paramount importance.

I originally intended to opt for 12100 strike for the strangle but the call option open interest was extremely low. Since I believe the risk is to the upside, we moved the call strike up to 12200 from 12100. 10600 is technically the support area that held very well from the charts. If you're willing to take some more heat on the downside, you could consider 10900/10700 put vertical as well. I personally would like to go with the strangle. We get a net credit of 56.05 at the time of this writing which is equivalent to 56.05 x 75 = 4203.75 Rs. The position is well beyond one standard deviation and we can consider rolling it if it gets tested during the course of the trade. We would target a profit of 50% on the trade.

So lets rock and roll! Here's to our first trade for April.