F&O picks: Biocon shows strength on charts, adopt Bull Spread: Nandish Shah

F&O strategy: Short-term trend of the Midcp Nifty turned weak, while it is strong for Biocon

Derivative strategy

Bear Spread strategy on Midcp Nifty

1) Buy Midcp Nifty (26-June Expiry) 13,000 Put at ₹174 and simultaneously sell 12,800 Put at ₹107

 

• Lot size: 120
• Cost of the strategy: ₹67 (₹8,040 per strategy)
• Maximum profit: ₹15,960, if Midcp Nifty closes at or below 12,800 on 26 June expiry.
• Breakeven point: ₹12,933
• Risk reward ratio: 1: 2.0
• Approx margin required: ₹31,000

 

Rationale:

 

• Long unwinding is seen in the Midcp Nifty futures, where we have seen 2 per cent fall in open interest with it falling by 1.5 per cent.
• Short term trend of the Index turned weak as it has closed below its 5 day EMA.
• Index formed double top pattern around 13,400 levels and reversed southwards on daily chart.
• Midcp Nifty Put Call ratio came down to 0.95 levels from 1.06 on the back of aggressive call writing at 13,000-13,200 levels.

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2) Bull Spread strategy on Biocon

Buy Biocon (26-June Expiry) 355 Call at ₹7.20 and simultaneously sell 370 Call at ₹2.80

 

• Lot size: 2,500
• Cost of strategy: ₹4.40 (₹11,000 per strategy)
• Maximum profit: ₹26,500, if Biocon closes at or above ₹370 on 26 June expiry.
• Breakeven point: ₹359.4
• Risk reward ratio: 1: 2.41
• Approx margin required: ₹31,000

 

Rationale:

 

• Long build up is seen in the Biocon Futures, where we have seen 17 per cent rise in open interest during the June series till now with price rising by 5 per cent.
• Short term trend of the stock is strong, as the stock price is placed above its 5,11 and 20 day EMA.
• Biocon Stock price has broken out on the daily chart with higher volumes.
• RSI oscillator is in rising mode and placed above 60 on the daily chart, indicating strength in the current uptrend.

 

(Disclaimer: This article is by Nandish Shah, senior technical/derivative analyst at HDFC Securities. Views expressed are his own.)