F&O strategy: Deploy Bull Spread on MidCap Nifty, PNB Housing, says analyst

Nandish Shah of HDFC Securities recommends a 'Bull Spread' strategy on MidCap Nifty and PNB Housing Finance as the analyst notes a positive bias, and build-up of long positions at these counters.

Derivative strategy by HDFC Securities

  BULL SPREAD STRATEGY ON MIDCP NIFTY  Buy MIDCP NIFTY (28-July Expiry) 14700 CALL at Rs 203 & simultaneously sell 14900 CALL at 113  Lot Size 120  Maximum profit ₹13,200; if MIDCP NIFTY closes at or above 14,900 on 28 July expiry.  Maximum Loss ₹10,800; if MIDCP NIFTY closes at or below 14,700 on 28 July expiry.  Breakeven Point 14,790  Risk Reward Ratio 1: 1.22  Approx margin required ₹31,500  Rationale: 

• Long build up is seen in the MIDCP NIFTY Futures, where we have seen rise in Open interest along with price rise.
• Short term trend remains strong as MIDCP NIFTY is placed above its important short term moving averages.
• It is forming higher top higher bottom candle stick pattern on the monthly charts.
• RSI Oscillator is in rising mode and placed above 50 on the daily chart.

F&O strategy in stocks

  BULL SPREAD Strategy on PNB HOUSING FINANCE  Buy PNB HOUSING FINANCE (28-July Expiry) 1100 CALL at Rs 29.35 & simultaneously sell 1120 CALL at 20.75  Lot Size 650  Maximum profit ₹7,410; If PNB HOUSING FINANCE closes at or above ₹1,100 on 28 July expiry.  Maximum Loss ₹5,590; If PNB HOUSING FINANCE closes at or below ₹1,080 on 28 July Expiry.  Breakeven Point ₹1,108.6  Risk Reward Ratio 1: 1.33  Approx margin required ₹25,000  Rationale: 

• Long build up is seen in the PNB HOUSING FINANCE Futures where we have seen rise in OI with price rising by 1.10%.
• Short term trend of the stock is positive as it is placed above its 5 and 20 day EMA.
• Stock price has broken out from the downward sloping trendline.
• RSI oscillator is in rising mode and placed above 60 on the daily chart, suggesting strength in current uptrend.

Note : It is advisable to book profit in the strategy when ROI exceeds 20%.  (Disclaimer: This article is by Nandish Shah, Senior Technical/Derivative Analyst at HDFC Securities. Views expressed are his own.)