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

Derivative Strategy

BULL SPREAD Strategy on NIFTY  1) Buy NIFTY (04-November Expiry) 26,000 CALL at ₹195 simultaneously sell 26200 CALL at ₹108

• Lot Size 75
• Cost of the strategy ₹87 (₹6,525 per strategy)
• Maximum profit ₹8,475 If NIFTY closes at or above 26,200 on 04 November expiry.
• Breakeven Point ₹26,087
• Risk Reward Ratio 1: 1.3
• Approx margin required ₹39,000

Rationale:

• Long build up is seen in the Nifty Futures, where Open interest rose by 2 per cent along with price rise of 0.20 per cent
• Short term trend of the Nifty remains positive as it is placed above its 11 and 20 day EMA.
• Amongst the options, put writing is seen at 25800-25900 levels.
• FIIS long to short ratio in the Index Futures still stands at an oversold level of 0.23, suggesting higher possibility of a short covering by them in the coming days.

 

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

 

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