I’m holding short positions on the following June expiry Nifty 50 call options: 24500-call (short at ₹246), 25000-call (short at ₹123) and 25200-call (short at ₹93). How to come out of these positions with minimum loss? – Kumar
Nifty 50 (24,750): To decide the best course of action, let’s now look at the outlook for the index. The trend has been up and steady since the first week of April. However, over the past two weeks, Nifty 50 has largely been charting a sideways trend between 24,500 and 25,080.
But consolidation by itself does not indicate a trend reversal. It shows that there is some loss in momentum of the existing bull trend. Note that Nifty 50 is trading above the 21-day moving average and so long as the 24,500 holds, the inclination will be bullish.
That said, if the index slips below 24,500, it can extend the downswing to 24,200 and 24,000. A fall below 24,000 is unlikely.
Nevertheless, as mentioned above, for the index to see a dip, the support at 24,500 should be breached, which is uncertain.
Since you have short positions, there is scope for gain (or chances to reduce losses) from time decay in case Nifty 50 stays in a sideways trend. And also, for the index to establish the next leg of uptrend, it should overcome the resistance at 25,080.
Based on the above factors, here is our suggestion. Hold the call short positions. Key decision making price levels are 25,080 and 24,200.
If Nifty 50 breaks out of 25,080, make sure to exit the shorts immediately (at the prevailing premium). But keep in mind that having an exit plan (or stop-loss) based on such a breakout can increase your loss from the current levels.
On the other hand, if Nifty 50 declines to 24,200, exit all the call short positions at the going price. Because there is a good chance for the index to rebound from the 24,000-24,200 support band, which can again increase the call option prices.
If Nifty 50 declines to 24,200 within next two weeks, the option premium of 24500-call, 25000-call and 25200-call of June expiry can drop approximately to ₹170, ₹50 and ₹30, respectively. But this is the best case scenario and we reiterate that the broader uptrend is still intact and the fall to 24,200 may not occur.
Another alternative is to liquidate all trades at once the momentum you are at break-even.
We have suggested the exit plans based on the underlying Nifty 50 and not the option prices per se because of the time value component and the prevailing sideways trend.
Send your queries to derivatives@thehindu.co.in
Published on May 30, 2025
Source link
