The index has gone berserk in terms of volatility over the last few sessions, especially after making an intermediate top of 17,992.2 in the last month. The heightened volatility now seems to there for some time but the good thing is the market has gradually formed a broad range within which the volatility is somewhat contained.
Although there are still some moves on both sides of the trend, after going through the last few sessions, the index has developed a range that might hold valid till the next week’s expiry. This is not a trend-following market as we have witnessed since mid-June 2022 bottom, after which one straight uptrend kept on continuing for two months. This is a range-bound market and buying after a dip and going short after a rally seems to have rewarded traders in the last few sessions.
Continuing with this type of market, the level of 17,800 – 17,850 (September futures) is the resistance on the upside which has thrown the index to lower levels around 2 times. Hence, this level is a favorite for short sellers, unless it gets breached. On the downside, although the index fell to 17,250 a few sessions ago, that seems to be a knee-jerk reaction low, which has not been tested again, at least yet. A bit above it, the range of 17,450 – 17,500 is a strong support zone that has strongly supported the index almost 4 times till now. Those traders who are still convinced that this is a buy-on–dip market, are glued to this range to make long positions in the index. To conclude, the chart shows a range of 17,450 on the downside and 17,850 on the upside.
However, the spiked over 10% in yesterday’s session and currently trading around 20 which should caution traders regarding volatile moves.
The option chain data show a high OI of around 1.02 lakh contracts being piled up in the 17,800 CE for the 8 September 2022 expiry. This level has also been confirmed by the chart, but a margin of 50 points above this could be taken to account for highly volatile moves. Again on the put side, 1.04 lakh of OI has been piled up at the 17,500 PE and traders should take a 50 points leverage below this level as well. The options data is also confirming the levels on the chart with +/- 50 points.
As there is a very clear range established for this expiry, option sellers would probably have ease to make positions. As long as the Nifty is hovering in the middle of this range, a clear-cut direction is difficult to judge. Hence, ideal place to initiate positions is near the established support and resistance levels. Again, this is not a market to find breakouts (in the index), but making contrarian bets near support and resistance is probably an ideal strategy.
Disclaimer – The above-mentioned article is not a recommendation to buy/sell/hold any security.
