F&O Strategy: HDFC Securities recommends bull spread on Nifty50

BULL SPREAD Strategy on Nifty

Buy Nifty (30-May Expiry) 22,500 CALL at Rs 206 & simultaneously sell

22,800 CALL at Rs 88

Lot Size 25

The cost of the strategy is Rs 118 (Rs 2,950 per strategy)

Maximum profit of Rs 4,550 If Nifty closes at or above Rs 22,800 on 30th May expiry.

Break Even Point Rs 22618

Risk Reward Ratio 1:54

Approx margin required is Rs 11000

Rationale

Long build-up is seen in the Nifty Futures, where open interest rose by 2 per cent (Prov) with Nifty rising by 0.92 per cent. The short-term trend turned positive as Nifty closed above its 5,11 and 20-day EMA.

FIIs long to short ratio in the Index Futures stands at an oversold level of 0.38 levels(Wednesday) which in turn suggests a higher possibility of a short covering by them in the coming days.

RSI Oscillator is sloping upwards and placed above 50 on the daily chart, suggesting strength in the current upmove.

Amongst the Nifty options, Put writing is seen at 22,200-22,300 levels.

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