After a phase of strong upward mo­vement, Nifty has been moving in an extremely narrow band of 40 points as far as intra-day movement is concerned. Such range-bound moves do not continue for long time.

They are signals of either a phase of distribution or consolidation after which a directional move takes place.

While the Indian earnings story appears to be panning out fine so far, which has made the Indian market outperform other emerging markets, global markets are still seeing some road blocks and they are not letting the indices break the strong resistance levels.

Our assessment is that the situation may remain the same over the next couple of weeks. Given this state of affairs, we would recommend aggressive traders to write a couple of straddles in order to take advantage of this range-bound movement.

For this week, we would suggest traders to write two straddles for the August series as the time value in most of the July series straddles is not very high.

The first straddle can be at strike price 5,300. The combined value of this straddle is Rs 286 with the call option quoting at Rs 190 and the put option going for Rs 96. This makes 5,586 the break-even point in the upward direction, while in the southward direction traders writing this straddle will have breakeven till 5,014.

We are recommending the strike price at 5,300 as in both directions, the premium collected from the trades takes care of

most of the major support and resistance levels that Nifty may face over the next

40 days.

Traders who have a slightly more bearish view of the market can write the straddle at strike price 5,200 for the August series. This straddle had a combined value of Rs 333 as of Friday, with the call option quoting at Rs 264 and put option going for Rs 69.

The range-bound movement of Nifty will shave off 15 per cent of the time value that the straddle commands at present level even before the August series begins.

But this straddle should be used to target return from any decline in time value and not from the expiry of the August series as volatile movements can lead to sharp losses.

If Nifty moves above 5,500, then it would be advisable to book losses on the straddle at strike price 5,200.