F&O Radar | Use Bear Put Spread in Nifty to profit from bearish market sentiment

The Nifty index consolidated in a range of 600 points for the last seven trading sessions, hitting lower lows on a daily scale with resistance levels gradually shifting downwards.

In addition, a bearish candle with a long upper shadow formed on the daily chart, indicating that the sell-on-rise trend could continue.

“As long as the index trades below 24,200, further weakness towards 23,900 and then 23,800 could be seen, while hurdles are expected at 24,300 and then 24,400,” said Chandan Taparia, Senior VP, Equity Derivatives & Technicals, Broking & Distribution at Motilal Oswal.

India VIX rose 1.89% from 15.87 to 16.17. Volatility has increased in the last three sessions, which is more reassuring for the bears.

On the options front, the maximum call open interest (OI) is seen at the 25,000 and then 24,500 strike prices, while the maximum put OI is seen at the 23,500 and then 24,000 strike prices. Call writing is seen at the 24,300 and then 24,500 strike prices, while put writing is seen at the 23,900 and then 24,100 strike prices. Options data suggests a wider trading range between the 23,600 and 24,600 zones, with an immediate range between the 23,800 and 24,500 levels. “Overall, we can take advantage of the negative to range-bound stance and expect that any small bounce could be sold for a downside move towards the 23,900 zones,” Taparia added. Chandan Taparia suggests using a bear put strategy in Nifty to take advantage of the bearish stance along with market volatility.

Bear Put Spread

This strategy is used by traders when they expect the price of an underlying asset to fall in the near future. It involves buying and selling put options with the same expiration date but different strike prices.

This strategy involves buying a put option with a higher strike price and selling a put option with a lower strike price. The put option with a higher strike price is in the money (ITM), while the put option with a lower strike price is out of the money (OTM). This results in a net loss for the trader because the cost of the ITM put option is offset by the cash flow from selling the OTM put option.

(Prices as of August 13)

Below you can see the payout graph of the strategy:

(Source: Motilal Oswal)

(Disclaimer(Recommendations, suggestions, views and opinions expressed by the experts are their own and do not reflect the views of Economic Times.)