Analyst suggests bear & bull spreads on Nifty, AU SFB; check strategy

Nandish Shah of HDFC Securities suggests a bear spread strategy on Nifty and a bull spread strategy o AU Small Finance Bank.

Derivative strategy by Nandish Shah of HDFC Securities 

1) Bear spread strategy on Nifty

 

- Buy NIFTY (28-April Expiry) 24,100 Put at ₹157 & simultaneously sell 24,000 Put at ₹117

- Lot Size 65

- Maximum profit ₹3,900 if Nifty closes at or below 24,000 on April 28 expiry.

- Maximum loss ₹2,600 if Nifty closes at or above 24,100 on April 28 expiry.

- Breakeven point ₹24,060

- Risk reward Ratio 1: 1.5

- Approx margin required ₹31,000

Rationale:

- Short build up is seen in the Nifty Futures, where open interest rose by 6 per cent along with price fall of 0.5 per cent.

 

- Nifty open interest Put Call ratio fell to 0.93 from 1.02 levels on the back of call writing at 24,200-24,300 levels.

- Primary trend remains weak as Nifty is placed below its 200 day EMA.

- Short term trend for the Nifty turned weak as it has closed below its 5 day EMA. 

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

2) Bull spread strategy on AU BANK

- Buy AU BANK (April 28 expiry) ₹1,060 Call at ₹18.5 and simultaneously sell ₹1,080 Call at ₹11.15

- Lot size 1,000

- Maximum profit ₹12,650 if AU BANK closes at or above ₹1,080 on April 28 expiry.

- Maximum loss ₹7,350 if AU BANK closes at or below ₹1,060 on April 28 expiry.

- Breakeven point ₹1067.35

- Risk reward Ratio 1: 1.72

- Approx margin required ₹37,000

Rationale:

- Long build up is seen in the AU BANK Futures where we have seen sharp rise in OI with price rising by 1.5 per cent.

- Short term trend of the stock is positive as it is placed above its 5 and 20 day EMA

- AU Small Finance Bank stock price has broken out on the daily and weekly chart with higher volumes.

- Momentum indicators and oscillators are in rising mode and placed above 50 on the daily chart, suggesting strength in current uptrend. 

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

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