Budget 2023: Check Nifty, Bank Nifty historical track record on last 15 budget days; analyst shares trading strategy for option traders
Short term options traders in Nifty must look for opportunities on the long side after the budget, Samco Securities report says adding that if all their conditions are met then chances of making money on the long side after the Budget are high
Crucial days lie ahead for the markets as the Dalal Street keeps a watch on two big-ticket events in the next few days – Finance Minister Nirmala Sitharaman's Budget 2023 speech in the Parliament and the Federal Reserve's 2023 FOMC press conference of Chair Jerome Powell.
Apurva Sheth, Samco Securities’ Head of Market Perspectives & Research, breaks it down for readers, on how Nifty and Bank Nifty have behaved on Budget day historically, and suggests strategies for option traders.
The report has been made based on the findings of 15 Budgets (13 full and 2 interim) from 2010 to 2022. The average budget day returns in Nifty is 0.26 per cent. Nifty's average return one week before the budget is -0.52 per cent and one week after the budget is 1.36 per cent. The average trading range (difference from day's high to low) on the day of budget is 2.65 per cent of past 15 years.
NIFTY Insights from Data: The above data suggests that on average, Nifty normally trades lower ahead of the budget. The main reason behind that is fear and uncertainty ahead of the event. The moment Budget event is out, the market quickly discounts it and starts trending higher.
So, if the budget is not favourable, prices discount it immediately and makes an intermediate low on the budget day. If there is positive surprise in Budget then too it trends higher.
NIFTY Strategy: Short term options traders must look for opportunities on the long side after the budget, the report said, adding that if all their conditions are met then chances of making money on the long side after the Budget are high.
BANK NIFTY Interpreting the Data: The average budget day return in Bank Nifty is 0.60 per cent. Bank Nifty average returns one week before the budget is -0.17 per cent and one week after the budget is 2.02 per cent. The average trading range (difference from day's high to low) on the day of budget is 3.83 per cent of past 15 budgets.
Strategy: Looking from the insights, the volatility is extremely high in Bank Nifty compared to Nifty. Option traders must look for hedged long strategies like Bull Call Spread or Call Ratio Backspread to make the most if Bank Nifty moves up after the Budget. Traders must also keep adequate stop losses if the movement is not favourable.
India VIX Interpreting the Data: This would come as a major surprise for many. India VIX, which measures the volatility of Nifty options, has fallen on all 14 Budget sessions since 2011. The average change is -9.02 per cent.
Strategy: The volatility is on the higher side before the event and it drops lower as the budget unfolds. Option traders must look to adopt an intraday short straddle or short strangle strategy to take benefit of falling VIX. As volatility cools down, we may see a sharp fall in option prices.
Closing Bell: Indian frontline indices S&P BSE Sensex and NSE Nifty50 not just ended their 2-day losing streak but also rebounded from 3 month lows on Monday. While the Sensex closed at 59,500.41, up 169.51 points or 0.29 per cent, the broader market Nifty50 closed at 17,648.95, higher by 44.60 points or 0.25 per cent. The banking gauge Nifty Bank also managed a green closing at 40,387.45 finishing 42.15 points or 0.1 per cent higher.
In the 50-stock Nifty50, 29 stocks advanced with Bajaj Finance, Adani Enterprises, UltraTech Cement Company, Bajaj Finserv and Asian Paints ending as top gainers. The top losers were Power Grid, Bajaj Auto, IndusInd Bank, Larsen & Toubro and JSW Steel.
(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)
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