F&O Strategy: Go for Bull Spread on Bank Nifty, recommends HDFC Securities

Nandish Shah, Sr. derivatives & technical research analyst of HDFC Securities, recommends to Buy Bank Nifty 43,800 Call option and simultaneously Sell 44,300 Call of the May series.

Derivative Strategy

BULL SPREAD Strategy on BANK NIFTY

Buy BANKNIFTY (25-MAY Expiry) 43,800 CALL at Rs 310 & simultaneously sell 44,300 CALL at Rs 113

Lot Size 25

Cost of the strategy Rs 197 (Rs 4,925 per strategy)

Maximum profit Rs 7,575; If Bank Nifty closes at or above 44,300 on 25 May expiry.

Breakeven Point Rs 43,997

Approx margin required Rs 22,000

Rationale:

• We have seen long build up in Bank Nifty Future during the May series till now, where we have seen 34 per cent addition in Open Interest (Prov) with price rising by 1.75 per cent.
   
• Short term trend of the Bank Nifty is positive as it is trading above its 11- and 20-day EMA.
   
• In the option segment we have seen put writing at 43,000-43,500 levels.
   
• Oscillators and momentum Indicators are showing strength in the weekly chart

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

Disclaimer: Nandish Shah is Sr. Derivatives & Technical Research Analyst at HDFC Securities. He doesn't hold any position in the stock. Views are personal.