Nifty Bank Strategy: How to use a 'Bull Spread' for May 29 expiry decoded

Derivative strategy

Bull Spread Strategy on Bank Nifty 

Buy BANKNIFTY (29-May Expiry) 54,500 CALL at ₹1,030 and simultaneously sell 55,000 CALL at ₹580

• Lot Size 30
• The cost of the strategy ₹450 (₹13,500 per strategy)
• Maximum profit ₹16,500 If Bank Nifty closes at or above 55,000 on May 29 expiry.
• Breakeven point ₹54,950
• Risk Reward Ratio 1: 1.22
• Approx margin required ₹32,500

Rationale:

• The long build-up is seen in the Bank Nifty futures, where we have seen a 3 per cent (Prov) rise in open interest with it rising by 2.2 per cent.
• The short-term trend of the Index is positive as it is placed above its 5,11 and 20-day EMA.
• The index has broken out from the downward-sloping trendline, adjoining the highs of the week ending 27-Sept-24 and 06-Dec 2024 on the weekly charts.
• Bank Nifty Put Call ratio has moved up to 1.17 levels on the back of aggressive Put writing at 53,500-54,000 levels.

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