For now, all the trends look bullish

The stock market zoomed in response to the Budget. The uptrend remains in force with Foreign Portfolio Investors (FPIs) also turning net positive. The Q3 results have also been better than the extremely low expectations post-demonetisation and that has also improved sentiment. Near-term triggers include the RBI policy statement and whatever rumours arise out of Assembly elections. 

The market has zoomed to new highs for calendar 2017 and the next targets would be the resistances in the range of 8,950-9,000, where the September 2016 rally peaked. If this uptrend sustains for much longer at this momentum, new all-time highs are likely to be recorded. The all-time high of 9,120 is not too far away. 

Importantly, the Budget has caused FPIs to return. The FPIs have bought rupee debt as well as being net equity buyers since Budget. The domestic institutions and retail both retain bullish fervour. At the moment, all the trends, short-term, intermediate and long-term look bullish. The FPI buying has helped the dollar to ease down - the latest Federal Open Markets Committee statement is also being interpreted to assume that the US policy rate will not be hiked until June. 

The Nifty Bank is also trading very close to its 52-week highs and the Bank index is usually a front-runner of the broader market. The Bank closed at 20,371 on Friday, while the 52-week high is at 20,575 and this could be hit in one big session.

A long Nifty Bank (February 23), 19,800p (100), and long (February 23), 21,000c (73), costs roughly 175. This is close to zero-delta with the index at 20,370. The breakevens are roughly at 19,625, 21,175. Either end of this long strangle could be hit, given three trending sessions. There are 12 sessions left and the market is trending. So, this seems reasonable.

A calendar spread can be created by selling short February 16, 19,800p (60) and short February 16, 21,000c (47). This cuts the net cost to roughly 68. If a short option is struck, the corresponding long option will rise in value. Traders should note that volatility for the Nifty Bank remains high. 

The Nifty's VIX has dipped sharply since the Budget and it has probably fallen to the point where it is under-pricing likely volatility. The put-call ratio is in bullish territory at above 1.1 for both one-month and three-month open interest. 

The February Nifty call chain has peak open interest (OI) at 9,000c, with high OI at every strike till 9,500c. The February put chain has very high OI at every strike down to 8,000p. Given the elections, the next settlement will also be volatile, until March 11, at least. Selling options may be more risky than normal.  

The Nifty is at 8,801. The straddle at 8,800c (95), 8,800p (82) is unevenly priced, indicating extra bullishness. A bullspread of long February 8,900c (50), short 9,000c (23) costs 27 and pays a maximum 73. This is roughly 100 points from money. A bearspread with long February 8,700p (49), short 8,600p (29) costs 20 and pays a maximum 80. This is also 100 points from money. The asymmetric payoffs indicate the excess bullishness. 

A combination of long 8,700p, long 8,900c, short 8,600p, short 9,000c costs 47 and pays a maximum 53, with breakevens at 8,947 ,8,653. This is zero-delta. There are good chances that one side of this position will be struck and even pay full value. If you expect range trading from here on, a butterfly of one long 8,900c (50), two short 9,000p (2x23), one long 9,100c (9) costs a net 13 and it could pay 87 if the index closes out the settlement near 9,000.