Monday, 25 December 2017

Strategy for expiry week: Initiate Modified Call Butterfly Spread in BANKNIFTY

Last week started with heightened volatility owing to State election’s result outcome. The Nifty made a swing low of 10,074.8; however recovered quickly to end the week at an all-time high of 10486, a gain of 1.5 percent.

Bank Nifty too made a swing low of 24,617 and ended the week with a gain of 0.7 percent at 25624. Option players remained active throughout the week.

10000 Put writers yet again provided strong support with OI base of over 9 million shares with bull taking full charge of momentum.

Week-over-week, Put writers have been shifting their base on the higher side with 10400 PE witnessing the incremental activity of 43 lakh shares while call writers at 10400-10500 unwinded their position by 25 lakh and 17 lakh shares respectively.

Nifty Option band now narrows down to 10400-10500. India VIX corrected drastically from over 15 to 11.4 level post-event signifying pessimism at rest.

Volatility is expected to remain near the lower-end in the coming sessions. PCR-OI strike wise moved higher above 2 for most of the strikes indicating Put writers taking the control.

Institution activity increased manifold mainly on account of rollover. Foreign institutional investors (FII’s) added to their synthetic position in the index options with 45,705 contracts to Synthetic Long (Call Long + Put Short ) while covered Synthetic Shorts (Put long + Call short) by 7,605 contracts.

BANKNIFTY too remains firm with 25,500 acting as a crucial support from the expiry perspective. Highest call congestion is placed at 26,000 with OI of 16 lakh shares.

Un-winding in 25600-25700 CE could pave ways for momentum towards 26000. Most of the private sector banks too saw short coverings by call writers indicating positive bias.

Thus to participate in positive momentum with low risk Bullish to Range bound strategy, Modified Call Butterfly Spread in BANKNIFTY is recommended.

Modified Long Call Butterfly is a Bullish to Range-bound strategy. It helps to execute a potential high-yielding trade at a very low cost. It is executed by buying 1 ATM CE, selling 2 OTM CE and buying 1 higher OTM CE with strike range being different.

The highest profit is made in the middle (sell) strike call; however, it reduces and provides constant profit above the third strike. Theta decay is beneficial if the Index trades at middle strike while at first strike and third strike it is harmful. Strike selection is a key to garner maximum benefit from this strategy.

Disclaimer: The author is CEO & Head of Research at Quantsapp Private Limited. The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

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