Option Trading Strategy: Bear Spread on Nifty for 12-Oct expiry; here's why

Buy Nifty 19500 Put option and simultaneously Sell 19300 Put of the 12-October expiry, recommends Nandish Shah, Sr. derivatives & technical research analyst of HDFC Securities.

Derivative Strategy

BEAR SPREAD Strategy on NIFTY

Buy NIFTY (12-October Expiry) 19500 PUT at Rs 126.55 & simultaneously sell 19300 PUT at Rs 73.85

Lot Size: 50

Cost of the strategy: Rs 52.7 (Rs 2,635 per strategy)

Maximum profit: Rs 7365; If NIFTY closes at or below Rs 19,300 on 12-Oct expiry.

Breakeven Point: Rs 19,447

Risk Reward Ratio: 1:2.8

Approx margin required: Rs 20,000

Rationale:

• Short rollover is seen in the Nifty Futures on Thursday where Open Interest rose by 30% (Prov) with Nifty falling by 1 per cent.
   
• Short term trend of the Nifty turned weak as it has closed below its 5-, 11- and 20-day EMA.
   
• Amongst the Nifty options, Call writing is seen at 19,500 - 19,600 levels.
   
• Momentum Oscillators like RSI(11) and MFI(10) are in falling mode and placed below benchmark level of 50, indicting bearish trend.

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

Disclaimer: Nandish Shah is Sr. Derivatives & Technical Research Analyst at HDFC Securities. He doesn't hold any position in the stock. Views are personal.