After ending the July series near the higher end of the trading range, the market witnessed a lacklustre start to Au­gust series in derivative segment. The volumes on the first trading session of the new series was very low and Nifty slipped down marginally, indicating confusion. It may take some time before we see any strong directional move.

While we still cannot rule out the possibility of Nifty breaking the high of 5,440, the probability of that happening in the extreme short term remains low as there could be some correction before the index makes another attempt to move upward.

So, over the next few weeks we expect Nifty to remain in a range between 5,490 and 5,213. Assu­ming that these are the two levels in which Nifty is likely to oscillate for a major time period in August series, we would say that traders may still write straddle for this month and also include a strangle for this month.

The reason why most of the time we advise traders to write straddles is the higher reward associated with the writing of str­a­ddles as compared with strangle given the fact that we have seen a range-bound move for a very long time and one cycle of this intermediate move is taking a quarter to complete. This gives us a good opportunity to straddles’ writers.

Among the three straddles wh­ich we would suggest for this we­ek, two have already been sugge­sted in the previous two weeks. The first straddle we suggested was of 5,300 strike price and the second one was of 5,500 str­ike price.

As expected, the straddle of 5,300 has already seen a decline in time value giving good returns to traders who had written this particular straddle. The combin­ed value of this straddle is Rs 216 as compared with Rs 275 a week before last week when we had recommended selling it.

For this week, we would suggest that while keeping both 5,300 and 5,500 strike price open we would recommend that a trader may also write a straddle of 5,200 strike price. The combined value of this straddle is Rs 262 with 5,200 call option quoting at Rs 216 and put option of 5,200 strike price quoting at Rs 46.

With market expected to correct a bit more, we are going to wit­ness a decline in the time val­ue of these options before they once again move upward.