Muhurat Trading 2024: Puneet Sharma suggests ‘butterfly’ options strategy for lower risk; IT, FMCG among key sectors

Muhurat Trading 2024: Muhurat Trading is more than just a trading session for the Indian stock market—it is seen as a ritual of optimism by D-Street experts. The one-hour session, steeped in tradition, typically attracts low volumes and less volatility, making it a great opportunity for some tactical positioning rather than frenzied trading. Analysts suggest investors should not chase wild returns during the session and minimize risk while taking positions.

Puneet Sharma- CEO and Fund Manager at Whitespace Alpha suggests the ‘butterfly options strategy’ for minimizing risk and follow a smart, tactical positioning for the Muhurat Trading session. "So, while the markets may be playing it cool, the savvy investor can still have some fun with strategic moves like the butterfly option strategy. While markets are in a corrective phase, it’s the perfect time to play it smart, not aggressive,” said Sharma.

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"Enter the Butterfly Strategy. Now, here’s where things get interesting. The butterfly options strategy is an ideal fit for this session. Think of it as a calculated dance where you’re limiting your risk but still positioning yourself for some upside," added Sharma, while suggesting the butterfly options method.

Here’s the structure of Puneet Sharma's butterfly strategy:

• Buy one call option with a lower strike.

• Sell two call options at the middle strike.

• Buy one call option with a higher strike.

According to the analyst, this setup lets you profit if the market stays stable, which is highly likely during Muhurat Trading. “It’s like flying under the radar, staying within a well-defined range while minimizing your downside risk.”

Also Read: Diwali 2024 Muhurat trading: What should your strategy be for Nifty 50? A guide from 5 experts

Why This Strategy?

1. Low Volatility, High Precision: Muhurat Trading is not the time for big moves, and that’s where the butterfly spread excels. “You’re betting on the market, staying within a range, typically during this session. It’s like planning a party where you already know most guests won’t make a scene!,” he said.

2. Limited Risk, Defined Reward: The beauty of this strategy is that the risk is capped. Investors know exactly what they are putting on the table, and in exchange, they get a defined reward if the market stays where one expects it.

3. Time Decay Works for You: Options are all about timing, and during this short session, theta decay (time decay) is your friend. The sold options will lose value quickly, adding to your potential gains without much effort. It’s like letting time work its magic while you sit back and enjoy.

"It’s essential to keep risk control in mind in a market undergoing a correction. The butterfly strategy during Muhurat Trading lets you engage with the market while maintaining a balanced approach. It’s not about chasing wild returns—it’s about smart positioning, which is exactly what we focus on at Whitespace Alpha," concluded Sharma.

Also Read: Nifty, Sensex rally 25% in Samvat 2080 on macro trends: What should be your trading strategy for Samvat 2081?

The Muhurat Trading session is considered a propitious time and encourages investors and traders to make stock and commodity purchases, symbolising the start of the new financial year for the Hindu calendar. This year's special session is scheduled for Friday, November 1, 2024 from 6:00 to 7:10 pm. The beginning of the new year, Vikram Samvat 2081, provides traders with opportunities to reevaluate their portfolios and plan further stock market investments.

Top sectors to watch out in Samvat 2081

According to Lemonn's markets desk, the top three sectors to watch for the new Samvat are information technology (IT), fast-moving consumer goods (FMCG), and pharmaceuticals. These sectors will remain in focus for investors on the Muhurat Trading session 2024:

IT:

The IT sector is emerging as a key area of interest, showcasing solid earnings performance and is one of the top sectors to watch out for. The Nifty IT index reported a year-on-year profit growth of 15.3 per cent, aligning closely with expectations. Revenue growth also showed promise, rising 7.3 per cent year-on-year, slightly surpassing forecasts, though the outlook remains cautiously optimistic.

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Notably, there are encouraging signs of a rebound in discretionary IT spending within the Banking, Financial Services, and Insurance (BFSI) sector, which is the largest contributor to IT revenue. Management teams express confidence in a strengthening deal pipeline and a reduction in uncertainty for the second half of FY25, particularly as the US Federal Reserve initiates a rate-cutting cycle following the upcoming elections.

FMCG:

Despite some setbacks in the Q2 FY25 earnings season, FMCG translates to a positive outlook. With around 67 per cent of earnings reported in the Nifty FMCG segment, a 50-50 split between earnings misses and beats was observed, which is disappointing relative to initial expectations.

Several major players in the FMCG space have highlighted challenges such as slowing urban demand and rising raw material costs, which are pressuring margins. However, revenue growth remains robust, bolstered by a recovery in rural demand.

Also Read: Bears grip D-Street: Nifty logs worst weekly run in 14 months ahead of Diwali; 5 key triggers for Samvat 2081

Looking ahead, a rebound in the second half of FY25 is anticipated, driven by the continued recovery in rural markets supported by a strong monsoon season, alongside expectations of stabilization in urban demand trends. The sector's inherent defensiveness during volatile periods positions it well, and any recent weaknesses in specific stocks seem to have already factored in many negative surprises.

Pharma:

The pharmaceutical sector is one of analysts' top picks for the future, thanks to its strong earnings visibility and defensiveness in the face of market volatility. The robust Q1 earnings for FY25, sector rotation and favourable conditions in US generic drug pricing, further bolster our optimistic outlook. These factors position the pharma sector as a compelling opportunity moving forward.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.