Derivative Trading Strategy for 18th Aug, 2025

Derivative Trading Strategy for 18th Aug, 2025

In today's session, the Indian stock market demonstrated a degree of volatility while remaining within a defined range, ultimately closing slightly higher, buoyed by mixed global signals and robust domestic buying activity. The Nifty 50 index commenced at 24,607.25, peaked at 24,672.35, and fell to a low of 24,597.20, before concluding at 24,631.30, reflecting a modest increase of 0.05%. The Bank Nifty index opened at 55,102.55, reached a high of 55,467.75, and also recorded a low of 55,102.55, finishing at 55,341.85, which represents a 0.29% rise. The Sensex mirrored this trend, starting at 80,625.28, achieving a high of 80,750.48 and a low of 80,497.20, and closing at 80,597.66, up by 0.07%. Trading volumes were moderate, with Nifty recording 270.16 million shares and Bank Nifty at 74.19 million. Foreign Institutional Investors (FIIs) exhibited net selling of ₹1,926.76 crore across the capital market segment, including NSE, BSE, and MSEI, indicating a bearish outlook from foreign investors. Conversely, Domestic Institutional Investors (DIIs) countered this trend with net purchases amounting to ₹3,895.68 crore, providing essential support to mitigate more significant declines. This FII selling trend aligns with a broader cautious market sentiment, while DII inflows have been instrumental in sustaining market stability, underscoring the critical role that professional traders play in influencing short-term market movements.

Market Participants Data 

• FII Cash Flows: Consistently bearish, with net selling ranging from ₹1,202.65 crore to ₹4,999.1 crore across the days. Today's additional FII sell-off of ₹1,926.76 crore reinforces this trend, suggesting foreign investors are unwinding positions amid global uncertainties.
• DII Cash Flows: Strongly bullish, with buys from ₹5,972.36 crore to ₹10,864.04 crore. Today's ₹3,895.68 crore buy underscores DIIs as market stabilizers.
• Client and Pro Positioning: Clients hold the largest long contracts (around 51-52% wise long), showing retail optimism, while Pros maintain balanced longs/shorts (around 21-23%). In options, index call longs exceed shorts for Clients and FIIs, but put longs are notable for hedging.
• Overall Derivative Exposure: Total long and short contracts balanced at 17-19 million, with Clients dominating longs (51.5%) and DIIs heavy on short futures (24% wise short). The difference in long-short percentages indicates mild bullish bias from Clients/FIIs but bearish from DIIs in futures.

This data points to a tug-of-war, where FII selling pressures the market bearishly, but DII and Client buying in derivatives trading keeps it afloat. Pro traders, with their key role in momentum, show increasing option shorts, hinting at volatility plays.

Nifty Option Chain data Analysis 

• Key Observations:
  • Highest CE OI at 25,000 strike (65,146 lots, +31,251 change), indicating strong resistance. CE OI changes are positive across most ATM/ITM strikes, with volumes peaking at 25,000 (297,872).
  • Highest PE OI at 24,200 (29,291 lots, +7,655 change), suggesting support. PE OI changes are mixed but positive for lower strikes, with high volumes at 24,700 (229,638).
  • PCR (Put-Call Ratio) Change %: Varies, with negative changes at higher strikes (e.g., -7,225% at 25,100) indicating bearish unwinding, but positive at lower strikes (e.g., +9,584% at 24,300) showing put buying for protection.
  • IV Levels: Around 10-11% for both CE/PE, low volatility suggesting rangebound moves.
  • Max Pain: Around 24,650-24,700, where cumulative OI is balanced.

Overall, Nifty option chain analysis shows bearish tilt with higher CE OI buildup, but PE support at 24,600 could cap downsides. Cumulative PCR at 0.96 confirms mild bearish sentiment in derivatives trading.

Bank Nifty Option Chain data Analysis

Encompasses the nearest strike prices for Bank Nifty, spanning from 56,400 to 54,400.

• Key Observations:
  • Highest CE OI at 56,000 (43,294 lots, +111 change), acting as resistance. CE OI changes are minimal, with high volumes at 55,500 (168,566).
  • Highest PE OI at 55,000 (29,491 lots, +109 change), indicating support. PE volumes surge at 55,400 (111,573) and 55,300 (112,641).
  • IV Levels: Stable at 10.5-11%, similar to Nifty, implying low expected moves.
  • PCR: Around 0.78 (cumulative from fourth sheet), bearish with more call writing.

Bank Nifty shows positional bearishness, with CE buildup outweighing PE, but recent PE OI additions suggest banking sector resilience.

Nifty & Bank Nifty Cumulative Data

The comprehensive analysis of cumulative data demonstrated

• Nifty: CE OI at 4.23 million (+605k change), PE OI at 4.08 million (+172k). PCR at 0.96 (bearish), volumetric PCR at 1.02 (mild bullish). Max PE OI at 24,600, CE IV ~63%, PE IV ~81% – higher put IV indicates downside fear.
• Bank Nifty: CE OI ~595k (-3k change), PE OI ~465k (+18k). PCR 0.78 (bearish), with max CE/PE OI at 57,000/55,000. Intraday bullish, positional bearish.

This derivative market data highlights a cautious outlook, with bearish FII influence but bullish DII counteraction in options.

Derivative Trading Strategy for 18 Aug, 2025:

Market Outlook and Option Trading Tips

Based on the derivative market analysis, Nifty option chain analysis, and cash flows, the market outlook for August 18, 2025 (next trading session post-weekend) appears rangebound with a bearish bias due to persistent FII selling. However, DII buying and Pro trader momentum could trigger short-covering rallies. Daily price action from open sources confirms volatility, with Nifty holding 24,600 support amid global rate cut bets, but failure to breach 24,700 may lead to profit-booking.

Recommended Option Trading Strategy

• Overall Stance: Neutral to bearish. Favor hedged trades in derivatives trading to manage low IV and potential whipsaws. Since FIIs are selling cash (bearish signal), but Pros may run the market upward on dips, focus on income strategies.
• For Nifty:
  • Bullish Play (If Breaks 24,700): Buy 24,700 CE (LTP ~119) and sell 25,000 CE for a bull call spread. Target: 24,800. Stop loss below 24,600.
  • Bearish Play (Preferred, on FII Pressure): Sell 24,600 CE (LTP ~172) with hedge buy 24,500 PE (LTP ~84). Aim for theta decay in range 24,500-24,700.
  • Neutral Strategy: Iron condor – Sell 24,900 CE & 24,300 PE, buy wings at 25,100 CE & 24,100 PE. Profitable in 24,400-24,800 range.
• For Bank Nifty:
  • Bullish Play (If Holds 55,300): Buy 55,500 CE (LTP ~506) and sell 56,000 CE for spread. Target: 55,800.
  • Bearish Play: Sell 55,500 CE with protective 55,000 PE buy. Expect resistance at 56,000.
  • Neutral: Strangle sell at 55,500 CE/PE, hedge with OTM options.
• Risk Management: Use 1-2% capital per trade, monitor OI changes for breakouts. Watch global cues like Fed rate decisions for volatility spikes.
• Entry/Exit: Enter post-opening on August 18; exit if Nifty breaches 24,550 downside or 24,750 upside.

This derivative trading strategy leverages current market data for informed decisions, emphasizing caution in a FII-driven bearish setup.

Disclaimer: This content is for educational purposes only and is not investment advice. Trading derivatives involves high risk, and past performance is not indicative of future results. Please consult a financial advisor before trading. Option Matrix India is not responsible for any losses incurred.