Analyst suggests 'Bull Spread' on Midcap Nifty Sept expiry; check strategy

Long build up is seen in the Midcap Nifty Futures where Open interest rose by 6 per cent along with a price rise of 0.60 per cent

Derivative Strategy

Bull Spread Strategy on Midcap Nifty

1) Buy MIDCPNIFTY (30-Sept Expiry) 13,300 CALL at ₹120 & simultaneously sell 13,400 CALL at ₹74

Lot Size: 140

Cost of the strategy: ₹46 (₹6,440 per strategy)

Maximum profit: ₹7,560 If MIDCP NIFTY closes at or above 13,400 on 30 Sept expiry.

Breakeven Point: ₹13,346

Risk Reward Ratio: 1:1.17

Approx margin required: ₹37000

Rationale:

• Long build up is seen in the MIDCP NIFTY Futures where Open interest rose by 6 per cent along with a price rise of 0.60 per cent
• Primary trend of the MIDCAP NIFTY remains positive as it is placed above its 100 and 200-day EMA.
• Index has broken out from the downward sloping trendline on the daily and weekly charts.
• MIDCP NIFTY Open Interest Put call ratio increased to 1.22 level from 1.09 levels on the back of Put writing at 13,000-13,200 levels.
• FIIS long-to-short ratio in the Index Futures stands at an oversold level of 1.11, suggesting a 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.)