The short-term outlook turned negative for Nifty Midcap Select (12,194.10) index. It finds an immediate support at 12,050 and the next one at 11,760. The short-term outlook will turn positive only on a close above 12,400. We expect the index to move in a broader range with negative bias. With the Union Budget being slated for July 23, we expect the index to turn volatile.
F&O pointers: Nifty Midcap Select index closed at 12,194.10. Against this, Nifty Midcap July futures closed at 12,190.95 and August futures at 12,177.85. This indicates unwinding of long positions ahead of expiry of July contracts and rollover of short positions. Option trading indicates that the index could move in the 11,500-13,500 range.
Strategy: Consider a long strangle, which can be initiated by simultaneously buying 12300-strike call and 12000-strike put of Nifty Midcap Select. As these options closed with a premium of ₹158.20 and ₹126.10 respectively, this strategy would cost traders ₹14,215 (market lot of 50).
The total premium paid will be the maximum loss, which would happen if the index were stuck between both the strikes. But a close above 12,584 or a dip below 11,716 will turn the position profitable. Profit potentials are huge if the index sees sharp swings in either direction. However, we advise traders to close the position at a profit of ₹9,000 or at a loss of ₹3,000, whichever occurs first.
Follow up: As advised, strategy on ICICI Bank was also to capitalize on Budget Day swings.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading