Stock market strategy for Budget 2024: How to trade in Bank Nifty options? Rahul Ghose explains

Indian stock market benchmark indices Sensex and Nifty 50 are witnessing heightened volatility ahead of the presentation of Union Budget 2024 by Finance Minister Nirmala Sitharaman on Tuesday, July 23.

Budget 2024 will be the first full budget of Modi 3.0 government and is widely expected to be growth-oriented with key focus on capex and fiscal prudence. The stock market is expected to remain volatile during the budget presentation as sector specific announcements tend to impact the stocks.

“Budget days are usually very volatile with the index tending to move in both directions during the course of the day. Market participants expect the Union Budget 2024 should aim to balance growth-driven initiatives with a populist measures, focusing on digital infrastructure, fiscal discipline, and support for key sectors like manufacturing and agriculture to stimulate economic development,” said Rahul Ghose, CEO of Hedged.in.

However, the stock market can respond adversely to unforeseen developments in the budget. Consequently, it is essential for investors to devise a comprehensive hedging strategy to mitigate the impact of such events.

Ghose advises a low risk strategy in the Bank Nifty index that can be employed to play the budget day. He believes this becomes important for traders and investors to plan a fully hedged strategy to weather any untoward surprises in the budget.

Speaking on the Budget trading strategy for Bank Nifty options, Ghose recommends Cross Calendar Spread. A calendar spread is an options strategy that involves simultaneously entering long and short positions on the same underlying asset but with different delivery dates.

As per the Cross Calendar Spread for Bank Nifty, traders can buy Bank Nifty Put option with a longer expiry and simultaneously sell a Bank Nifty Put option with a shorter expiry date.

Here’s the budget trading strategy for Bank Nifty by Rahul Ghose:

Trade name:

Bank Nifty Cross Calendar spread

Trade Structure:

• Buy 51000PE August 28th expiry
• Sell 50500PE July 31st expiry

Trade rules:

The capital required in the trade is approximately ₹20,000. According to Ghose, this trade can be entered if Bank Nifty is between 52,500 and 51,500 on or before the budget day.

The maximum loss in the trade is ₹3,000 and the target in the trade should be 4-5% on the capital depending upon the time and individual risk appetite, he said.

Trade Modifications:

The trade is protected with a limited risk, but one can further bring down the risk by constantly selling weekly expiry puts of subsequent weeks.

For example: At the end of July, one can buy back the 31st July PE and sell the 7th August or week after that PE. Just make sure that you get at least ₹80 when you are selling the Puts, Ghose added.

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