Analyst suggests 'Bull Spread' on Bank Nifty August expiry; check strategy

Derivative Strategy

Bull SpreadStrategy on Bank Nifty

 

1) Buy Bank Nifty (28-August Expiry) 55800 Call at 575 & simultaneously sell 56300 Call at 350

  Lot Size 35

  Cost of the strategy 225 (7875 per strategy)

  Maximum profit 9625 If Bank Nifty closes at or above 56300 on 28 August expiry.

  Breakeven Point 56025

  Risk Reward Ratio 1: 1.22

  Approx margin required  39000

Rationale:

 

-- Long build up is seen in the Bank Nifty Futures where Open interest has risen by 2 per cent along with price rise of 0.10 per cent

  -- Primary trend of the Bank Nifty remains positive as it is placed above its 200 day EMA.

 

-- It has been forming bullish higher top higher bottom formation on the monthly chart.

 

-- Put writing is seen at 55000-55500 levels.

 

-- FIIS long to short ratio in the Index Futures stands at oversold level, suggesting higher possibility of a short covering by them in the coming days.

 

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