Hello guys, I hope you are doing well. In this edition of our weekly market newsletter (Weekly Indian Market Outlook), I will cover the weekly Indian market outlook, weekly chart analysis of the Nifty and BankNifty, and weekly strategies for weekly income.
Before getting started on our weekly chart analysis and option trading strategies, let’s talk about one of the main use of options that the majority of traders/investors don’t know and trade options in the wrong way.
The topic we discuss today is “The role of options in portfolio management and risk management for long-term investors.”
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The role of options in portfolio management and risk management for long-term investors.
Options are financial instruments that give the holder the right, but not the obligation, to buy or sell a specific asset at a predetermined price within a certain time frame. They are widely used in portfolio management and risk management as they provide investors with the ability to hedge their investments and manage potential losses. In this article, we will delve into the role of options in portfolio management and risk management for long-term investors.
Options in Portfolio Management
One of the main ways in which options are used in portfolio management is to generate additional income. Long-term investors often have a diversified portfolio that includes stocks, bonds, and other assets. While these assets may generate some income, options provide investors with the opportunity to earn additional income by selling call options on their stocks.
When an investor sells a call option, they receive a premium from the buyer of the option in exchange for the right to buy the stock at a certain price within a certain time frame.
Options can also be used to protect against losses in a portfolio. For example, if an investor is concerned about a potential decline in the value of a stock, they can purchase a put option, which gives them the right to sell the stock at a certain price within a certain time frame. This allows the investor to hedge their position and limit their potential losses if the stock does indeed decline in value.
Options in Risk Management
In addition to their role in portfolio management, options are also used in risk management to help investors manage their exposure to various risks. For example, an investor may be concerned about the potential impact of rising interest rates on their bond portfolio. They can use options to hedge against this risk by purchasing call options on a bond index. This allows them to benefit from rising interest rates without having to sell their bond holdings.
Options can also be used to manage currency risk, which is the risk that the value of a currency will fluctuate and impact the value of an investment. Investors can use options to hedge against currency risk by purchasing options on currency pairs, such as the US dollar and the euro. This allows them to protect their investments against potential losses due to currency fluctuations.
In conclusion, options play a crucial role in portfolio management and risk management for long-term investors. They provide investors with the ability to generate additional income, protect against losses, and manage various risks, such as interest rate and currency risk. By utilizing options in their investment strategies, long-term investors can better manage their portfolios and minimize their exposure to potential losses.
Weekly Strategies and Levels
This week, the Market opened flat and later we saw a sharp decline in the last 3 trading sessions. Most of the sectors closed in red where Nifty IT and Nifty Media are the top losers closing with a loss of 2.3%.
The overall sentiment looks bearish in Market and Nifty and BankNifty. both have broken their important support levels this week. Now let us look at the weekly chart of Nifty and BankNifty to find the important levels. You can keep these important levels on radar for further levels in the coming week.
Weekly Chart Analysis of Nifty and BankNifty
Now let’s look at the weekly chart first to know the important levels:
If you look at the weekly charts of Nifty and BankNifty, you can easily find that from the last one year, both the indices are trading in a range. Although BankNifty has given a breakout it looks like it is finding it difficult to sustain above the range and trying is fall again in the previous range i.e 32300 – 41800.
On the other hand, Nifty faced resistance near 18600 and we saw some profit booking from higher levels that helps to keep it in the range of 16000 – 18600.
Now after looking at the weekly chart, we can say that the Nifty is in a sideways trend on the weekly chart and BankNifty is bullish only till it is holding the 41300 – 41800 zone. Below this zone, again BankNifty will fall in the sideways trend.
Now let us look at the daily chart.
Daily Chart Analysis of Nifty and BankNifty
Let’s start with the Nifty chart first. After making a high of 18887.60, We have seen a sharp decline in Nifty. Now based on the Fibonacci retracement tool, 17565 – 17817 (50& – 61.8%) is acting as the reversal zone. If Nifty Manage to sustain above this zone, then again we may see some higher levels else it would hit the downside levels of the 16500 – 17000 zone which is the reversal zone based on the weekly chart.
Now, this 17500 to 17800 is the range that is important in terms of reversal for upside movement.
Trade Plan for the coming week: If the Nifty manages to stay above 17800 this week, you can place a long bet above that level with a stoploss below 17800. Else trade with a range-bound strategy until Nifty is not giving a breakdown from 17500. I will share my Intraday trades and strategies in our telegram channel. Join through the below button.
BankNifty has given a breakdown from a 23.6% retracement level and heading toward the 38.2% level. Now 41567 is important for further downside. A Breakdown will lead to 40769 which is the 50% level based on the weekly chart.
Important levels to keep on the radar this week in BankNifty is 41567 on the downside and 42555 on the upside. You can initiate a shirt trade if BankNifty sustains below 42555 for the target of 41567. You can keep a stoploss above 42555.
Tip for the week: Initiate a short trade but keep your risk on the limited side. Don’t trade naked trades without any hedge.
If you are trading intraday and wanted to know how I’m catching 300 – 400 points in Nifty and 800 – 1000 points in BankNifty then check my small course where I have shared my Intrday Stragies with trend following sheet.
Weekly Strategies for January 12, 2023
In the above section. we have analyzed the chart and found the range based on the chart. Now before we create any strategy, let’s look at the open interest data to check the range for the coming week for our weekly strategies in Nifty and BankNifty.
- Nifty Open Interest Analysis:
- The highest OI is at 18000 PE & CE. The support is at 17700 & Resistance is at 18100 for the coming weekly expiry based on the PCR rule.
- Max pain is at 18000. Indicates expiry level.
- But you can see that call writing is high which means the trend looks bearish for the coming sessions. So avoid any long trade and follow data.
- BankNifty Open Interest Analysis:
- The highest OI is at 42000 CE & 43000 CE. The support is at 41500 & Resistance is at 43000 for the coming weekly expiry.
- Max pain is at 42000.
- Call writing is high compared to Put writing in BankNifty also. So trend looks bearish. Follow the change in OI for further levels.
Based on the OI data, the range is very wide and the trend looks bearish in both indices. An increase in IV is giving us a good opportunity to deploy some credit spreads. I’m sharing the strategies that I deployed in my account on Friday. You can follow the data on Monday and if it looks fine, can deploy these strategies.
Weekly Strategies for the Coming week
Weekly Strategies in Nifty
I have created this modified Iron Butterfly to make money in range-bound action while keeping risk on the limited side. I’m following the 17800 – 18200 range and I will adjust my strategy if there is any breakout or breakdown.
These adjustments we are doing in the live session in front of Mentorship program students. You can enroll in Mentorship program if you want to learn these advanced strategies and adjustments.
- Click here to book your seat: Option Strategies: A Mentorship program
Weekly Strategies in BankNifty
It’s a premium strategy that we are teaching in our course. You can see this strategy has a 65% probability of success. For risk management, you can keep a stop loss of ₹8000 as an MTM loss and we will do some adjustments if there is any breakout or breakdown from our range..
We teach this strategy in our course. You can enroll to learn the weekly strategies with predefined rules of entry and exit.
Much Check this also-
- Deploying short strangle by looking at profit/loss at the payoff chart? – A must-read for beginners!
- Why is psychology important in options trading?
- 3 Simple Options Strategies for High Volatility
Post your comments in the comment box if you have a query related to this weekly Indian Market Outlook. You can ask any question related to options trading in the comment box.
If you need more real-time assistance on the Nifty and Bank Nifty weekly strategies or want to deploy these hedging trading strategies for monthly Income, Can take our premium subscription and you will get real-time assistance every month on these Options trading strategies. You can contact us on WhatsApp.
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DISCLAIMER: We are not a SEBI research analysts. Views and trading strategies are posted in this weekly market newsletter only for educational purposes. There is no liability whatsoever for any loss arising from the use of this product or its contents. This product is not a recommendation to buy or sell, but rather a guideline to interpreting specified analysis methods. This information should only be used by investors and traders aware of the risk inherent in securities trading.