Historical and F&O data indicates Nifty may swing 7-10%

In May 1999, the benchmark indices had risen 16% and in May 2004, the Nifty had plunged by 17% after UPA came to power with help of left.

May 17, 2019 03:05 IST IIFL Derivative Desk Raushan Kumar |

Historical Data: 
 
Since 1999, the Nifty has witnessed wild swings in the month of May when the nation has gone to the polls. Refer the below table:
 
Nifty Movement in Election Month
Election Month Nifty Change
May-99 1132 16%
May-04 1484 -17% UPA  came to power with the help of Lleft 
May-09 4449 28% UPA Victory, unexpected rise in Congress seat tally
May-14 7230 8% Cheering BJP Landslide victory
 
In May 1999, the benchmark indices had risen 16% and in May 2004, the Nifty had plunged by 17% after UPA came to power with help of Left. 
 
In May 2009, the Nifty had a 28% return after the UPA (United Progressive Alliance) emerged victorious on the back of an unexpected rise in the congress seat tally. And in May 2014, the benchmark indices had risen 8%, cheering BJP (Bharatiya Janta Party) victory.
 
F&O data:
 
1. The Nifty combined premium (Call and Put option) inflow from 11000 to 12000 strike for the seller is Rs600-700, it suggests that option writers are charging more premium and the index is expecting a volatile swing of 600-700 points on either side. 
 
2. As per volatility (commonly referred to as VIX or Implied Volatility) calculation for the May month, the expected movement points for Nifty are 950 (Nifty spot leve l*VIX level* days).
 
3. In the options segment for the month of May, the maximum open interest among Nifty put options is at 11,000 strike followed by the 10,500 strike, while the highest open interest among call options is at the 12,000 strike followed by the 12,500 strike. This means the Nifty has the potential of rising by 7-10% and the potential of falling by more than 2.50-7% from Thursday’s close of 11,250.
 
Remarks:
The best derivative strategy in highly volatile market is " Ratio Spread". Traders and investors are advised to use complex option strategy after knowing their risks through a derivative expert only. Hedging any open positions against adverse market movements is a key aspect of risk management in derivatives.  

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