Wait for earnings reports
If last month belonged to call option buyers, this month belongs to neither call option buyers nor those with long positions in put options. Straddle sellers are the lucky ones in the April series, as the Nifty has remained in a narrow range-bound mode this month. To some extent, traders who had covered call options would have made some money, though mark-to-market losses in Nifty futures would be making them at bit uncomfortable now.
This week, because of the scheduled expiry of contract, the best thing for non-professional traders would be to stay off by not making any fresh trade. Try a new trade after the April series gets over. For, likely high volatility in one of the first four sessions would be enough to wipe out a good amount of trading capital. Another reason traders should avoid trading during volatility is that a wrong or a loss-making trade not only takes away trading capital but it also erodes the confidence of a trader, sending him into a negative frame of mind.
Coming to strategy for professional traders this week, note that not much of short positions are there in the system. The market is in overbought territory, hence the Nifty’s moves would depend on how the long rollovers pan out. So, the pressure before expiry would be largely from profit-booking. It would be better to wait for a correction to pan out before selling straddles. Sell multiple straddles of different strike prices that are not far from at the money. Second, the strategy continues to be covered call, but in this case, as there would be some mark-to-market losses on existing positions, wait for a bounce to happen. If that takes the Nifty closer to its recent high, then go for the covered call strategy.
PSU bank stocks saw lacklustre movements despite news reports suggested of an imminent new government policy to deal with non-performing assets. Probably, a fear of bad quarterly results is weighing on the market. So, it would be better to stay out of Bank Nifty trades and see how the results of large PSU banks are. If they are below expectations, one may buy some put options as profit-booking pressure might emerge on those stocks and the Bank Nifty.
If the results of a bank are below the line and still the stock holds firm, it would mean that the street has discounted the outcome. In that case, go for a covered call strategy. Even at-the-money call options can also be looked at.
Essentially, there is no room for positional trades at this point of time. Yes, the probability of a “spur of the moment trade” is there, with potential risk-adjusted good returns, for a nimble-footed professional trader.
Rajiv Nagpal