Derivative analyst Nandish Shah advises a Bull spread strategy on BANKNIFTY

The derivative analyst from HDFC Securities recommends buying January 38,000 Call and selling 38,500 Call of the Bank Nifty based on the following four rationales.

Bull spread Strategy on BANKNIFTY

Buy BANKNIFTY (27-JAN EXPIRY) 38,000 CALL at Rs 422 & simultaneously sell 38,500 CALL at Rs 222

Lot Size 25

Cost of the strategy Rs 200 (Rs 5,000 per strategy)

Maximum profit Rs 7,500 If Bank Nifty closes at or above 38,500 on 27 Jan expiry.

Breakeven Point Rs 38,200

Rationales:

• We have seen short covering in the Bank Nifty Futures during the January series till now, where we have seen 7% fall in the Open Interest with Bank Nifty rising by 8%.
• Short term trend is bullish as Bank Nifty is trading above its 20 and 50 day Exponential moving averages.
• After taking support at 20day EMA, Bank nifty recovered more than 300 points from the low on Thursday.
• Put writing is seen at 37500-38000 levels. (27 January 2022 expiry)
• We expect recent outperformance from Bank Nifty as compared to Nifty is likely to continue till the January series.

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