Market men had been expecting a correction for a long time. It happened last week when the Nifty slipped southward and the market breadth turned negative once again.

This correction is going to test the hypothesis that there is a lot of liquidity and long-only funds will use the opportunity to enter the market.

The market is expecting strong directional move as the Supreme Court will start hearing the Reliance Industries-Reliance Natural Resources case next week. The event can affect stocks that are part of the Nifty and lead to high volatility in the market.

Though the hearing is not expected

to even give an indication to the way

the case is headed but the options premiums are still very high as some traders are being cautious.

The indices are likely to fall and the volumes will be low due to the short trading week. There is going to be pressure on the indices and, after a period of a correction there is going to be increased volatility and range-bound movement.

There are two strategies for a trader this week. First, buy a put option of 4,900 strike price for Rs 116 as the option price will head north sharply as the Nifty slips.

This is because the 4,900 put has a strong support at 4,850. In case the Nifty falls below 4,850, there is going to rush to buy 4,900 put as it will become an in-the-money (ITM) put option which has a lot of built-in shorts.

Even investors who want to protect their portfolio from sharp losses should buy this form of put option.

The second strategy is only for aggressive traders. Sell a straddle of 4,800 strike price, which makes the combined value of this option Rs 294. At the same time, sell a straddle of strike price 5,100, which is quoting at Rs 283 .

The Nifty is expected to make an attempt to move up and make a range-bound move after the short-term correction. This will ensure that the time value

of both the straddles erodes and can be

collected by traders. This would mean returns of more than 2 per cent in just 20 days.