Bull spread on Bank Nifty, recommends Nandish Shah of HDFC Securities

Derivative Strategy

BULL SPREAD Strategy on BANK NIFTY

Buy BANK NIFTY (16-July Expiry) 52300 CALL at Rs 375 & simultaneously sell 52800 CALL at Rs 157

Lot Size 15

Cost of the strategy Rs 218 (Rs 3270 per strategy)

Maximum profit Rs 4230 If BANK NIFTY closes at or above Rs 52800 on 16 July expiry.

Breakeven Point Rs 52518

Risk Reward Ratio 1: 1:29

Approx margin required Rs 15700

Rationale:

Short covering is seen in the Bank Nifty Futures at lower levels, where Open Interest fell by 1 per cent (Prov) with Bank Nifty future rising more than 500 points from the intraday lows.

Bank Nifty has formed bullish hammer candle stick pattern on the daily chart, suggesting short term bullish trend reversal.

Primary trend of the Nifty remains positive as it is placed above its 50, 100 and 200 day EMA.

Amongst the Bank NIFTY options, Put writing is seen at 51500-52000 levels.


(Nandish Shah is a technical research analyst at HDFC Securities. Views expressed are his own.)