Hedge your portfolio by deploying ‘Long Put Butterfly’ spread: Rajeev Srivastava

One can hedge the portfolio doing a long put butterfly of strikes 12800/12600/12400 by paying a net premium of Rs 50 for the said strategy, Rajeev Srivastava, Chief Business Officer at Reliance Securities, said in an interview to Moneycontrol’s Kshitij Anand. Edited excerpts:

A) The Nifty50 witnessed profit booking from the higher range as 13,000 and huge call options writing was observed capping the upside.

There was a bout of high volatility with respect to the weekly expiry and multiple tops in the range of 12,930-12950 levels.

The Nifty50 closed 0.6 percent higher but midcaps and small caps outperformed to gain 2.8 percent and 1.5 percent, respectively, for the week.

A) With the derivative expiry during the week, we expect the markets to trade volatile with rollover movement in individual sectors and stocks.

There are a lot of stocks that are under the ban period in the derivatives segment and it would witness unwinding of the positions. On the higher side, the 13,000 CE strike has the highest OI of 36.5 lacs shares while the 12,800 PE strike has an OI of 37.7 lacs shares.

One can hedge the portfolio doing a long put butterfly of strikes 12800/12600/12400 by paying a net premium of Rs 50 for the said strategy.

A) The key levels to watch for Nifty50 is 13,000 on the upside as a crossover of it would give a breakout and short covering in 13,000 call strikes would extend the up move to 13,300 levels.

On the downside, a breakdown of 12,730 would push the markets lower, putting pressure on the index to test the previous all-time high of 12,400.

A) The second-quarter results were above expectations with improvement in earnings and upgrades for the broader markets.

The festival season has brought a lot of cheer to the automobile and consumer sectors with volume and sales picking up in the current quarter.

The Nifty50 revenues were down by 7 percent y-o-y but cost controls have improved margins with 8 percent EBITDA growth and 15 percent PAT growth for the second quarter.

The Nifty50 trades at 20 times on FY22 earnings expectations, trading above the long term average, higher valuations and sharp run-up from 11,800 to 12,900 levels could keep the market's cap on the upside.

Any negative news flow from global markets or DXY moving higher from 92.5 to 96 levels could put pressure on emerging markets.

FII flows have been strong in excess of Rs 40,000 crore during November till date, pause or reversal could also lead to some unwinding and sell-off.