Nifty Bank Strategy: How to use a 'Bull Spread' for June 26 expiry decoded

The short term trend of the Bank Nifty is positive as it is placed above its 5,11 and 20 day EMA

Derivative Strategy

Bull Spread Strategy on Bank Nifty

 

1) Buy BANKNIFTY (26-June Expiry) 56,000 CALL at ₹840 and simultaneously sell 57,000 CALL at ₹423

• Lot Size 30
• Cost of the strategy ₹417 (₹12,510 per strategy)
• Maximum profit ₹17,490 If Bank Nifty closes at or above 57,000 on 26 June expiry.
• Breakeven Point ₹56,417
• Risk Reward Ratio 1:1.40
• Approx margin required ₹33,500

Rationale:

• Long build up is seen in the Bank Nifty futures during the June series till now, where we have seen 15 per cent rise in open interest with it rising by 0.4 per cent.
• Short term trend of the Index is positive as it is placed above its 5,11 and 20 day EMA.
• Stock price has broken out from the downward sloping trendline on the weekly charts.
• Bank Nifty Put Call ratio has moved up to 0.83 levels from 0.81 on the back of aggressive Put writing at 55,000-55,500 levels.

Bull Spread Strategy on NHPC

 

Buy NHPC (26-June Expiry) 90 CALL at ₹2.05 & simultaneously sell 95 CALL at ₹0.75

• Lot Size 6400
• Cost of strategy ₹1.3 (₹8,320 per strategy)
• Maximum profit ₹23,680 if NHPC closes at or above ₹95 on 26 June expiry.
• Breakeven Point ₹91.3
• Risk Reward Ratio 1:2.85
• Approx margin required ₹20,000

Rationale:

• Long build up is seen in the NHPC Futures, where we have seen 2 per cent rise in open interest with price rising by 0.6 per cent
• Short term trend of the stock is strong, as the stock price is placed above its 5,11 and 20 day EMA.
• Stock price has been forming bullish higher top higher bottom formation on the daily chart.
• RSI oscillator is in rising mode and placed above 60 on the daily chart, indicating strength in the current uptrend.

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