Although Finance Minister Nirmala Sitharaman is not expected to make any major announcements in the Interim Budget 2024, market participants expect the domestic market to witness some volatility on Budget Day.
The General Elections will be held in May 2024, so this Budget will only be temporary. The full Budget will only be presented in July 2024 after the new government is formed. Traders and investors will keep their focus on fiscal deficit targets, measures to increase manufacturing in India and government spending on infrastructure.
Experts point out that volatility is at its peak before the Budget speech begins and goes down when the speech ends.
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So, how should traders prepare for Budget Day?
Days before the Budget see higher volatility and significantly large intraday movement on Budget Day. However, traders can take advantage of this volatility by adopting appropriate strategies.
Puneet Sharma, CEO of Whitespace Alpha recommends two-way strategies to take advantage of volatility in the market.
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“With the Account Vote scheduled before the National Elections later this year, things could get a little more interesting on Budget Day on February 1, which is also the weekly expiry of Nifty 50 options. Bank Nifty expires one day previously on January 31. ,” Sharma pointed out.
“If you trade intraday or take positions in the derivatives market, you should consider stop loss at reasonable distances so that they provide sufficient protection, while at the same time not so close that they are triggered by the exaggerated intraday movements,” said Sharma. .
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For options traders, Sharma said option premiums will be high given higher expected volatility. Traders may consider direction-agnostic strategies such as butterflies, long strangles/straddles or iron condors to have a higher chance of profiting from the volatility, he said.
“For example, one can consider taking a PE butterfly position centered at 200 or 250 points below Nifty 50 with 100 point gaps for the wings and a CE butterfly position at a similar distance above the market price. The price of this butterfly with four. days to go for expiry is 7 rupees. Taking a position either way on this would cost 14 rupees with a possible increase to make 100 rupees on expiry day if one position hits or even an extreme figure of close to 200 if both hit. nominal risk reward from 1:7 to 1: 14,” Sharma said.
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“What should be noted is the ability to close these trades even without waiting for expiration at 1530hrs on February 1st if they hit in the interim with a smaller profit. Traders can note that strategies like these come with a maximum risk reward pre-defined and also has a lot. lower margin requirements given that the position is essentially market neutral,” Sharma said.
Sharma said volatility and speculative trading ahead of the Budget announcement should not affect long-term investment decisions for investors. With national elections expected to be held in May, the market may be considering a return of the current BJP-led government, given recent state election results. Sharma expects the current market rally to continue post-budget as well.
Shrey Jain, Founder and CEO of SAS Online said that the best way to play the high volatility is by using a short strangle with a clearly defined stop loss on both legs.
“Here the investor makes money if the underlying remains in a narrow range. We expect the index to trade in a narrow range on the Budget Day as the Interim Budget may not have any big announcements. Traders should stay to stop loss and take. indications of price action,” Jain said.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and second-hand companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.