Bear Spread on Nifty today, recommends Nandish Shah of HDFC Securities

Derivative Strategy

 

Bear Spread Strategy on Nifty

• Buy Nifty (28-Nov Expiry) 23,500 PUT at Rs 178 and simultaneously sell 23,300 PUT at Rs 115

Lot Size 25

Cost of the strategy Rs 63 (Rs 1575 per strategy)

Maximum profit Rs 3425 If Nifty closes at or below Rs 23,300 on November 28 expiry.

Breakeven Point Rs 23,437

Risk Reward Ratio 1: 2.17

The margin required Rs 11,800

 

Rationale:

• Short build-up is seen in the Nifty Futures on Thursday, where we have seen 4 per cent rise in the open interest with Nifty falling by 0.11 per cent. Nifty continued its downward journey for the second week in a row where it fell by 2.5 per cent to close at five-month low.
• Short term trend of the Nifty remains weak as it is placed below its 5. 11 and 20 day EMA.
• RSI Oscillator is in falling mode and placed below 40 on the daily chart, indicating bearish trend.
• Amongst the Nifty options, Call writing is seen at 23,700-23,800 levels.

 

Note: It is advisable to book profit in the strategy when the return on investment (ROI) exceeds 20 per cent.  (This article is by Nandish Shah, senior technical/derivative analyst at HDFC Securities. Views expressed are his own.)