Long Put — Real Trade Walkthroughs on Nifty and Bank Nifty

Trade Walkthrough 1 - Nifty Weekly Put, October 2024 

Background: October 2024 was a difficult month for Indian equity markets, driven by significant FII outflows as global funds reallocated capital away from Indian markets toward China following the Chinese government's stimulus announcements. Nifty had reached an all-time high near 26,200 in September 2024 and was in the early stages of a correction. The weekly chart showed: an established weekly uptrend with all Higher Highs and Higher Lows intact, but a potential weekly lower high was forming as the October pullback developed. India VIX had spiked from 12.5 to 16.8 over the October selling sessions. 

October 7, 2024 (Monday): Nifty had declined from the September 26,200 high to 25,900, with VIX at 16.8. A brief bounce brought Nifty to 26,050 on October 7 -- approaching the prior high at 26,100 to 26,200. The October 7 daily candlestick: a Shooting Star. Upper shadow of 210 points (from 25,980 body low to 26,190 intraday high). Body closed near the session low at 25,840. Volume: 1.6x 20-day average. 

Checklist: Step 1 = Weekly uptrend (counter-trend put entry -- maximum 1.5 percent position size). Step 2 = Resistance zone 26,000 to 26,200 (prior all-time high, tested twice in September, round number 26,000, highest call OI for the week at 26,000 CE with 55 lakh contracts). Step 3 = Shooting Star at resistance on 1.6x volume -- high conviction bearish signal. Step 4 = RSI 67 (above 55, confirms). MACD histogram: +12, declining from +22 (bearish divergence forming -- approaching Step 4 confirmation). Step 5 = Highest call OI at 26,000 CE confirms OI resistance. Max Pain at 25,700 (below current underlying -- bearish gravity). Step 6 = Target: 25,200 (prior weekly low, 640 points below entry at 25,840). ATR at 200 points. Expected sessions = (640/200)^2 = (3.2)^2 = 10.2. Minimum sessions = 10.2 x 1.5 = 15.3. Current weekly expiry (Tuesday October 8): 1 session -- insufficient. Monthly expiry (last Tuesday October 29): 15 sessions -- exactly at the minimum. Used monthly expiry. Step 7 = ATR stop = 1.5 x 200 = 300 points above entry at 25,840 = 26,140. Risk-reward = 640/300 = 2.13:1. Position size multipliers: 0.75 (counter-trend Step 1), 1.0 (Step 3 high conviction), 0.75 (Step 4 one confirming), 1.0 (Step 5 OI confirms). Combined: 0.75 x 1.0 x 0.75 x 1.0 = 0.5625. Rounded to 0.5x. Position = 2 percent x 0.5 = 1 percent. Step 8 = 25,800 PE (ATM, delta approximately -0.52). Monthly expiry. Premium Rs 220 per unit. 1 lot Rs 16,500. 

Entry October 8 (Tuesday -- post Monday evening analysis): bought 1 lot Nifty 25,800 PE monthly at Rs 220. GTT stop at Rs 110 (50 percent of Rs 220). Account Rs 15 lakh. 1 percent = Rs 15,000. Rs 16,500 is slightly above 1 percent -- accepted at 1.1 percent (within the counter-trend 1 percent maximum at the margin). 

Management: October 9 to 14 -- Nifty declined steadily. FII outflows continued. By October 14, Nifty was at 25,000 -- 840 points below the entry level. The put premium had risen to Rs 380 -- a 72.7 percent gain, exceeding the 50 to 80 percent partial profit trigger. Partial exit October 14: sold 37 units at Rs 380. Realised gain: Rs 160 x 37 = Rs 5,920. Updated GTT on remaining 38 units from Rs 110 to Rs 220 (break-even). 

October 15 to 22 -- Nifty continued declining. By October 22, Nifty reached 24,800 -- approaching the 25,200 target (which was set from the October 7 pre-trade analysis, and Nifty had already moved beyond it). The remaining 38-unit position put was now at Rs 560 per unit. At the technical target (25,200 -- already exceeded), decided to exit the remaining position at a level consistent with the extended decline. Final exit: sold 38 units at Rs 560. Gain on remaining: Rs 560 - Rs 220 = Rs 340 per unit x 38 = Rs 12,920. Total trade P&L: Rs 5,920 + Rs 12,920 = Rs 18,840. Total capital deployed: Rs 16,500. Return: 114 percent in 14 sessions (October 8 to October 22). 

BANK NIFTY MONTHLY PUT - NOVEMBER 2023 

Deepa entered a Bank Nifty 44,000 PE (monthly November last-Tuesday expiry) on November 3, 2023 at Rs 380 per unit (1 lot, 25 units -- prior lot size, Rs 9,500 total). The thesis: Bank Nifty had rallied from 43,000 to 45,800 in three weeks, approaching the prior high at 45,500 to 46,000. A Shooting Star formed on the daily chart at 45,600 with RSI at 71 and MACD declining from a high positive reading. All eight checklist steps confirmed. GTT stop at Rs 190 (50 percent). Target: 43,000 (2,600 points below entry at 45,600). What happened: the anticipated Bank Nifty decline did not materialise. Instead, positive global sentiment and strong private bank quarterly results drove Bank Nifty from 45,600 to 47,500 over the following eight sessions. The GTT at Rs 190 was triggered on November 10 (six sessions after entry) as Bank Nifty's continued advance reduced the put premium to Rs 185 -- below the Rs 190 trigger. Loss: Rs (380 - 185) x 25 = Rs 195 x 25 = Rs 4,875 realised loss. The stop performed its function. Bank Nifty subsequently declined in late November from 47,500 to 44,800 -- confirming the eventual correctness of the bearish thesis but four weeks after the position was stopped out. The thesis was right. The timing was wrong. 

Key Lessons From Both Walkthroughs 

Lesson 1 from the Nifty trade: the counter-trend position size reduction (0.5x multiplier producing 1 percent instead of 2 percent) was validated by the trade's risk profile. Even though the trade was profitable, the position was correctly sized smaller than a trend-aligned trade would have been -- the weekly uptrend context warranted caution. The 1 percent position still produced Rs 18,840 in gain -- the position size reduction did not eliminate the trade's value, it calibrated it to the actual analytical risk. 

Lesson 2 from the Bank Nifty trade: correct analytical thesis, wrong timing. The Bank Nifty decline from 47,500 to 44,800 in late November proved that the bearish thesis was eventually correct. But the option expiry was November (last Tuesday), and the decline began after the option's expiry had already removed the position. This is the timing component of the three-part long options requirement. The stop at Rs 190 was the operationally correct exit -- the alternative (holding through the stop hoping for recovery) would have risked the remaining Rs 4,625 of premium (Rs 185 x 25 units) with very low expected value given that the position was being squeezed by a strong advance against the thesis.