Nifty trend turns weak; HDFC Sec suggests Bear Spread; analysis here

Short build-up is seen in the Nifty futures, where open interest rose by 9 per cent along with price fall of 1.6 per cent, said Nandish Shah of HDFC Securities

Nifty Derivatives Strategy by Nandish Shah of HDFC Securities

Bear Spread Strategy on Nifty

• Buy Nifty (24-Feb Expiry) 25,400 Put at ₹143 and simultaneously sell 25,200 Put at ₹75
• Lot size: 65
• Maximum Loss: ₹4,420 if Nifty closes at or above 25,400 on 24 Feb expiry.
• Maximum profit: ₹8580 if Nifty closes at or below 25,200 on 24 January expiry.
• Breakeven point: 25,332
• Risk reward ratio 1: 1.94
• Approx margin required: ₹34,000

Rationale:

• Short build-up is seen in the Nifty futures, where open interest rose by 9 per cent along with price fall of 1.6 per cent.
• Short-term trend for the Nifty turned weak as it closed below its 5,11 and 20 day EMA.
• Nifty open interest put call ratio fell sharply to 0.71 levels from 1.22 levels on the back of call writing at 25,500-25,800 levels.
• RSI Oscillator is in falling mode and placed below 50, suggesting strength in thedowntrend.

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