Nifty Jan expiry strategy: Kotak Securities recommends a Bear Put Spread

Sahaj Agrawal recommends to create Bear Put Spread on the Nifty by buying the 22,800 Put and selling the 22,500 Put option of the January series.

Derivatives Strategy  Nifty Strategy: Bear Put Spread (30JAN2025 Series)  Strategy Details: 

• Buy 22800 PE and Sell 22500 PE
• Outflow: ₹~86
• Stop-Loss: ₹40 (Loss: ₹46)
• Target: ₹170 (Profit: ₹84)
• Lot Size: 25
• Breakeven Points: Lower Breakeven: 22714

Rationale: 

• Key Support Breach: Nifty has broken out of the immediate consolidative band between 23000 & 23400. The dismissal of the crucial support level around 23,000 has opened the door for bears to push Nifty towards the 22,500 zone.
• Weakness in Midcaps Signals Broader Vulnerability: Persistent selling pressure in mid and small-cap stocks highlights a weak undertone. Nearly 80% of NSE200 stocks are now trading below their 200-day EMA, emphasizing the deteriorating market structure.
• Limited Upside Potential: Weak follow-through buying and resistance at higher levels indicate a capped upside, making bearish strategies more favorable in the current setup.
• Open Interest: Significant OI observed at 23000 Call and 22500 Put levels, indicating key trading zones. The Put-Call Ratio (PCR) for the 30th January 2025 series stands at 0.67, reflecting a negative built-up.
• Defined Risk Strategy: A bearish put spread using 22800PE (Long) and 22500PE (Short) strikes provides a cost-effective, limited-risk approach to profit from further downside while mitigating exposure to extreme market volatility.

Disclaimer: Views expressed by Sahaj Agrawal, Senior Vice President, Head of Derivatives Research, Kotak Securities