F&O radar| Implement Short Strangle in Nifty to benefit from range bound market

The Nifty index breached the all-time high of 26,277.35 set in 2024 and touched a fresh peak of 26,325.80 last Monday. However, selling pressure emerged above the 26,300 level, indicating that upside momentum may have been exhausted.Sahaj Agrawal, Senior Vice President and Head of Derivatives Research at Kotak Securities, noted that a critical technical swing support was identified around 25,840 on November 26. This support zone has taken on even more significance thanks to a trendline connecting the key lows from late September (24,587) and early November (25,318).

“Currently, this trendline is near 25,900, making the 25,840–25,900 range a key support area in the near term,” he added.

He further stated that resistance is clearly between 26,300 and 26,350 while the key support band is between 25,850 and 25,900.

“The lack of directional strength in the index suggests that Nifty is likely to trade within a certain range in the coming sessions,” Agrawal said.

In light of this, Sahaj Agrawal proposes a Short Strangle options strategy, which aims to benefit from time decay as long as Nifty remains within the identified consolidation range. In summary, technical signals indicate a short-term consolidation phase framed by well-defined resistance and support levels. The Short Strangle strategy fits this environment and provides a method to capitalize on potential in a market with limited bandwidth while managing the risk of a breakout beyond these key levels.

Short strangle

The Short Strangle is an options trading strategy where an investor sells both an out-of-the-money (OTM) call option and an OTM put option on the same asset, with the same expiration date. This strategy is designed to profit from limited price movements, mainly through time passage, as long as the asset remains within a certain range.

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