On Friday, it gapped down with the rest of the market, due to fear arisen by Yesbank’s fate, the market decided to price in the panic of people.
Now, We have a gap. If that is breached, it will trigger short covering because the extent of the gap is quite huge here! We can safely consider the high of the candle succeeding the gap down as an equivalent of higher high.
Although the market has priced in extra risk premium with a magnificent red candle, the better choice will be to selling at the money put options instead of if the trade setup triggers. The high premium will give us a good buffer from the and the risk (as well as reward) will be also significantly low compared with buying naked .