Nandish Shah of HDFC Securities recommends Bull Spread on Bank Nifty

Derivative Strategy

Bull Spread Strategy on Bank Nifty

1) Buy Bank Nifty (26-June Expiry) 52,000 Call at Rs 270 &

simultaneously sell 52,500 Call at Rs 117

Lot Size: 15

Cost of the strategy: Rs 153 (Rs 2,295 per strategy)

Maximum profit: Rs 5,205 If Bank Nifty closes at or above 52,500 on June 26

expiry.

Breakeven Point: 52,153

Risk Reward Ratio 1: 2:27

Approx. margin required: Rs 15,500

Rationale

Long build up is seen in the Bank Nifty Futures, where Open Interest rose by 7 per cent(Prov) with Nifty rising by 0.75 per cent.

Short-term trend is positive as Bank Nifty is placed above its 5,11 and 20 day EMA. RSI Oscillator is sloping upwards and placed above 60 on the daily and weekly chart, suggesting strength in the current up move.

Amongst the Bank Nifty options, Put writing is seen at 51,000-51,500 levels.

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

 

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