Budget day trading strategy: What should Nifty traders do on D-Day?

[hfe_template id='11223'] [ad_1]
Whether the stock market ends higher or lower on Budget day today, volatility is likely to be higher than usual as in 12 out of the last 14 instances, Nifty has shown intraday fluctuations within a 2-3% range.

"A common trend observed is that the Implied Volatility (IV) of Options rises in the days leading up to the Budget but subsequently declines sharply during the speech. Given this pattern, instead of adopting a directional strategy (delta-based approach), traders may find implied volatility (vega-based) strategies more profitable, capitalizing on the expected IV crush," Sujit Modi, CIO, Share.Market, said.


Also read | Budget & stock market: Why odds of Sensex, Nifty rallying are high after D-Day

Back testing data shows that Short Iron Fly and Short Iron Condor strategies are the most consistently profitable, succeeding in 13 out of 14 instances, he said.


Share.Market’s trading strategy for Budget day:


  • Maximum profit per lot:
    • Short Iron Fly: ₹1,746 ( July 2024 )
    • Short Iron Condor: ₹780 ( July 2024)
  • Exception:
    • In 2021, Nifty 50 experienced an outlier move of 4.74%, leading to higher-than-usual losses.
    • However, even in this extreme scenario, losses remained controlled due to the protective OTM hedge:
      Maximum loss on Budget Day 2021.
      • Short Iron Fly: Max loss ₹5,300 per lot
      • Short Iron Condor: Max loss ₹3,050 per lot
Given the historical tendency for volatility to contract following the Budget, Short Iron Fly and Short Iron Condor to be potentially effective vega-based strategies for Budget Day trading, Modi said.

HDFC Securities' Budget day trading strategy:


The brokerage recommends a Long Butterfly Strategy for traders looking to capitalize on market volatility on the back of budget announcements. Here’s the rationale:• In the options segment, aggressive put writing is seen at the 23000 level(06-Feb-Expiry), suggesting strong support around that level.

• The FIIs' long-to-short ratio in index futures has improved to 0.33 from 0.19, marking its highest level since December 23.

• This indicates early signs of short covering by FIIs.

• Current Options IVs (23%) are higher than the 5-year average of 20.6% (two days before the Budget).

• Historical data from the past 12 years shows that IVs drop significantly on Budget Day (refer to slides 9 & 10).

• If IVs decline after the Budget announcements, it will favor the Long Butterfly Strategy.

• Based on options data, Nifty is expected to remain within the 23000–24000 range until the 06 Feb expiry.

A long butterfly spread with Calls is a three-leg strategy that is created by buying one call at a lower strike price, selling two Calls with a higher strike price and buying one Call with an even higher strike price.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

[ad_2] Source link https://mrgaga.in/budget-day-trading-strategy-what-should-nifty-traders-do-on-d-day/?feed_id=46413&_unique_id=679ed95fc4870

Comments

Post a Comment

Popular posts from this blog

India VIX jumps 100% in one month. Could fear levels take Nifty further down?

Image
[hfe_template id='11223'] [ad_1] Volatility in Indian equity markets has surged sharply over the past month, with the India VIX nearly doubling as geopolitical tensions and global uncertainty triggered aggressive selling in equities. India VIX, often referred to as the market’s fear gauge, has jumped close to 100% over the past month, reflecting growing nervousness among investors. The spike has coincided with a sharp correction in the broader market, with the Nifty 50 declining about 8% during the same period. The escalation of tensions involving the United States, Israel and Iran has intensified market anxiety in recent days, pushing crude oil prices sharply higher and triggering a global risk-off sentiment. However, analysts note that volatility had already been building even before the conflict escalated, reflecting broader concerns around global growth, foreign capital outflows and stretched valuations in equities. The heightened uncertainty translated into a sharp ...
Read more

Can Sensex, Nifty snap 2-day fall on Monday? 7 factors that could decide market mood this week

Image
[hfe_template id='11223'] [ad_1] Benchmark indices Sensex and Nifty ended the week on a bearish note, closing over a percent lower each as a deepening selloff in IT stocks rattled investor sentiment amid mounting fears of AI-led disruption. Further, stronger-than-expected jobs data for January dampened hopes of a US Fed interest rate cut. Here are 7 factors that could decide market action in the coming week: 1.) Infosys, Wipro ADRs rebound - After a brutal two-day selloff that saw Infosys and Wipro ADRs plunge as much as 14.5%, Friday’s session brought a much-needed breather. Bargain hunting kicked in at lower levels, sparking a sharp rebound as Infosys climbed 3% while Wipro gained 4%—helping both stocks close the week on a far stronger note. International brokerage firm JP Morgan has a message for panic-stricken investors: IT services firms are the indispensable "plumbers of the tech world" and their dividend yields have now hit levels last seen only during ...
Read more

Waaree Energies shares in focus after Q4 profit rises 34% to Rs 619 crore, revenue up 36%

Image
[hfe_template id='11223'] [ad_1] Waaree Energies shares will be in focus on Wednesday after the solar panel maker reported a strong Q4 performance, with net profit rising 34.1% year-on-year (YoY) to Rs 618.9 crore for the quarter ended March 31, 2025. In the same quarter last year, the company had reported a profit of Rs 461.5 crore. Revenue from operations jumped 36.4% to Rs 4,003.9 crore, up from Rs 2,935.8 crore in the year-ago period, according to the company’s regulatory filing. EBITDA more than doubled to Rs 922.6 crore in Q4 FY25, up 120.6% from Rs 418.3 crore in the same quarter last year. The EBITDA margin improved to 23% from 14.3% a year ago. The company produced 2.06 GW of solar modules in the fourth quarter, up from 1.35 GW in the same period last year. For the full year, module production reached 7.13 GW, compared to 4.77 GW in FY24. For the full financial year FY25, revenue rose 27.62% YoY to Rs 14,846.06 crore. Profit after tax more than doubled to Rs 1,9...
Read more