F&O Trade: Analyst suggests bear spread on Nifty for Jan 9; check levels

Short build up is seen in the Nifty Futures, where Open interest rose by 17 per cent along with price fall of 1 per cent, said Nandish Shah, technical research analyst at HDFC Securities.

Derivative Strategy on Nifty index

 

Bear Spread Strategy on Nifty 

• Buy NIFTY (20-Jan Expiry) 25,800 PUT at ₹106 & simultaneously sell 25,600 PUT at Rs 55
• Lot Size 65
• Maximum Loss ₹3,315 If Nifty closes at or above 25,800 on 20 January expiry.
• Maximum profit ₹9,685 If NIFTY closes at or below 25,600 on 20 January expiry.
• Breakeven Point ₹25749
• Risk Reward Ratio 1: 2.92
• Approx margin required ₹34,000

Rationale:

• Short build up is seen in the Nifty Futures, where Open interest rose by 17 per cent along with price fall of 1 per cent.
• Short-term trend of the Nifty turned weak as it closed below its 20 and 50 day exponential  moving average (EMA).
• Nifty open interest put call ratio fell sharply to 0.67 levels from 0.89 levels on the back of call writing at 26,000-26,100 levels.
• The Relative Strength Index (RSI) Oscillator is in falling mode and placed below 50, suggesting strength in the downtrend.

Note : It is advisable to book profit in the strategy when ROI exceeds 20%   

 

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