Trading strategy for the Budget 2022

Trading rules for the Budget 2022

As our finance minister Nirmala Sitharaman read her fourth budget on 1st February 2022, Investors must stay ready to witness the volatility in the Indian stock market. Amid pandemic since 2019, every sector is trying to cope with the situation and survive and grow. every sector has their expectation from the finance minister and the Government of India. With the finance minister reading out her budget fr the coming year, every person’s eye and ear will be glued o the televisions and internet, to listen to her and what our finance minister has in her kitty forever person living and every business existing in India. However, this is one good time to invest in the market and make use of high volume and volatility in the market.

  Call Option ATM Strike Put Option
YEAR 7 days before 1 days before ATM strike on the Budget Day 7 days before 1 days before
2021 230.6 38.4 14300 248.3 657.2
2020 510 22.7 11700 19.9 46.9
2019 150.9 201.4 11800 121.8 37.4
Source:icicidrect.com
   

To take our stand on the budget day. Let’s see how has options performed in the last three budgets.

Considering the at the money strike last 3 budget, pre-budget implied volatility gain before due to uncertainty and as the budget is over the implied volatility shrinks on the side against which the market is moving.

Handle the risk on the budget day

Whether prices move up or down, straddles and strangles are two strategies, that will help an investor to benefit.

A long straddle is a strategy where an investor purchases both a long call and a long put on the same underlying and same strike price.

A long strangle is a strategy where an investor has one long call with a higher strike price and one long put with a lower strike.

The only risk in both the strategy is the premium paid. So, we can mitigate the risk by using any of these strategies but can’t reduce the risk to zer0.

Nifty and Bank nifty are two indexes, that are highly volatile on the day of the budget. Taking advantage of this volatility is what every investor seeks, however, it is important to know that high volatility means high risk. Thus investors must be cautious before entering into any kind of options trading or intraday trading.

YearDatesNiftyBudget DayBank NiftyBudget Day
201216-Mar-125318-1.210391-1.9
201328-Feb-135693-1.811487-3.7
201417-Feb-1460730.4103271.2
201410-Jul-147568-0.214822-0.7
201528-Feb-1589020.6196913.2
201601-Feb-167556-0.115314-1.3
201701-Feb-1787161.8200212.6
201801-Feb-1811017-0.127221-0.6
201901-Feb-19108940.627086-0.8
201905-Jul-1911811-1.1314760
202001-Feb-2011662-2.529821-3.3
202101-Feb-21142814.7330898.3
Source:livemint
   

Performance of Nifty and Bank Nifty in last 10 years on the Budget Day

Taking cues from the previous performance, we can despite higher volatility, nifty and bank nifty did close marginally high or even some time in negative, it was only last year, i.e in the year 2021, Nifty and Bank Nifty both took the leap of 4.7% and 8.3%, respectively. 2022, could replicate the year 2021, thus investors must stay prepared with their trading strategies to not miss the market momentum.

NIFTY OUTLOOK

Nifty has been the week with the bank gaining almost 237.9 points from the last week’s close of 17101.95. formation in the chart indicates strength in nifty for the short to medium term. If budget euphoria takes nifty across 17400, and any it sustains the level, then we can see, buying in nifty and it may regain the level of 18000. The level of 17400 and 16800 are two crucial points of Nifty any swing towards any of these levels may take the index in their respective side.

BANK NIFTY OUTLOOK

Bank Nifty settled the first week on the day in red however, it gained almost 286 points from last week’s close of 37689.40. The index is indecisive on the weekly chart, however looking at the daily chart, it is making higher tops and higher bottom formations, indicating a surge in the index. Amid some budget support from the government of India, might take the Bank nifty on the upside and if it manages to cross the 38000 mark and sustains the level, then we can see ore buying in the index.

Index Resistance 1 Resistance 2 Support 1 Support 2
Nifty 17600 18000 16800 16400
Bank Nifty 38600 39200 36300 36000
Invest19.com
   

However, any fall in the bank nifty can be ignored till crosses the level of 37000 mark, any fall below this level with strength may take the index towards 36300.

Sectors in focus

Healthcare Sector

Covid had a huge impact on the entire Life Sciences and Health Care (LSHC) industry. 

Nifty Pharma has opened the week with a surge in the index by 332 points from the last weekly close of 12983.50. The strength in Nifty pharma will continue amid any relief from the budget given to the sector, Nifty pharma may touch the 13394 and any sustainable movement above the level will push the nifty pharma to 13628.

IT sector

IT sector has become key to the development of Indian economy.  Many Indian It companies have made it to the list of most valuable IT companies across the world.

Nifty It after prolonged weakness since last 7 trading days, managed to open the week with strength. Nifty IT has crossed its first major resistance of 34473 and sustainabletrading above this level will take the index toward 35065.80.

STOCKS IN FOCUS

State Bank of India:

State Bank of India is nearing its first resistance level of 543.90 and positive reform for the banking sector will affect the entire banking sector SBI being the largest bank in the country will certainly react to the budget and the price may go up to 543.90.

ICICI Bank:

The largest private sector Bank will see high volatility, as it is trading at 788.80 near its first resistance level of 797, thus if the bank gains momentum and manages to touch the level of 797 with strength then we can see prices moving to 805.

Tata Consultancy Services:

TCS has made it to the list of most valuable IT companies in the world and the same has impacted the prices of the TCS and has touched the high of 3758, crossing its first resistance level. Any supportive package to the IT sector will provide further support to the share prices and it may touch the level of 3775.15.

No risk no gain, however taking calculative risk is a must. An investor must do their homework, before taking their position on the budget day, as the market will be subject to high volatility, thus high risk,  depending on the kind of budget tabled.

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