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Election strategy: How to play markets ahead of Lok Sabha poll results

Higher volatility suggests that volatile swing could be seen in the Indian market as per the outcome.

Chandan Taparia  |  Mumbai 

Election strategy by Motilal Oswal:

After the recent volatile swing, Indian indices are likely to see next leg of movement as per the outcome of Election Result 2019 which is scheduled on May 23, 2019. India VIX-metric to indicate volatiltiy in the market-is near to 28 zones which is the highest levels in last 44 months since September 2015.

Higher option premium due to election result and higher volatility suggests that volatile swing could be seen in the Indian market as per the outcome. To get the opportunity of wide swings we are suggesting three different scenario and suitable strategies along with expected market range.

MOFS Lok Sabha Elections

If BJP gets a clear Majority: Expected upside towards 12500 zones
Buy Call (11600 CE)
Buy 1 lot of 11600 Call @ 201
BEP : 11801
Max Risk : 201 Points (Rs. 15075/-)
Max Reward : Expected 700 Points (Rs. 52500/-)

If NDA gets majority (BJP + Other Alliance) : Expected upside towards 12000 zones
Bull Call Spread (+ 11500 CE - 12000 CE)
Buy 1 lot of 11500 Call @ 254
Sell 1 lot of 12000 Call @ 67
BEP : 11687
Net Premium Paid : 187 Points
Max Risk : 187 Points (Rs. 14025/-)
Max Reward : 313 Points (Rs. 23475/-)

If Fractured verdict or NDA fails to form government : Expected downside towards 10700-10500 zones
Bear Put Spread ( + 11300 PE - 10700 PE)
Buy 1 lot of Nifty 11300 Put @ 234
Sell 1 lot Nifty 10700 Put @ 90
BEP : 11156
Net Premium Paid : 144 Points
Max Risk : 144 Points (Rs. 10800/-)
Max Reward : 456 Points (Rs. 34200/-)

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Chandan Taparia is a Technical & Derivatives Analyst at Motilal Oswal Financial Services (MOFS). Views expressed are his own.

First Published: Mon, May 20 2019. 06:55 IST
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