F&O Setup: Here's how to trade Bank Nifty with a Bull Spread strategy

The short-term trend of the Bank Nifty index is positive as it is placed above its 5,11, and 20-day EMA

Derivative Strategy

Bull Spread strategy on Bank Nifty

 

1) Buy Bank Nifty (29-May Expiry) 55,500 Call at ₹600 & simultaneously sell 56,000 Call at ₹390

• Lot Size: 30
• Cost of the strategy: ₹210 (₹6300 per strategy)
• Maximum profit: ₹8700; If Bank Nifty closes at or above 56,000 on 29 May expiry.
• Breakeven Point: ₹55,710
• Risk Reward Ratio: 1: 1.38
• Approx margin required: ₹33,000

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Rationale:

• Long build up is seen in the Bank Nifty futures, where we have seen 7 per cent (Prov) rise in open interest with it rising by 1 per cent.
• Short term trend of the index is positive as it is placed above its 5,11 and 20 day EMA.
• Stock price is on the verge of breaking out from the bullish flag pattern.
• Bank Nifty Put Call ratio has moved up to 0.92 levels from 0.83 on the back of aggressive Put writing at 54,500-55,000 levels.

Here's your Bank Nifty trading guide by Kotak Securities' Sahaj Agrawal 

Note: It is advisable to book profit in the strategy when ROI exceeds 20 per cent

 

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