F&O Cues: Here's how to trade Bank Nifty with a 'Bear Spread' strategy

Derivative Strategy

BEAR SPREAD Strategy on BANK NIFTY

1) Buy BANKNIFTY (25-November Expiry) 58,000 PUT at ₹532 & simultaneously sell 57,500 PUT at ₹369

• Lot Size 35
• Cost of the strategy ₹163 (₹6,930 per strategy)
• Maximum profit ₹11,795 If BANK NIFTY closes at or below 57,500 on 25 November expiry.
• Breakeven Point ₹57,837
• Risk Reward Ratio 1:2.07
• Approx margin required ₹41,000

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Rationale:

• Profit booking is seen in the Bank Nifty Futures where Open interest fell by 1 per cent along with a fall of 0.61 per cent.
• Short term trend of the Bank Nifty turned weak as it closed below 5 day EMA
• Bank Nifty Open Interest Put Call ratio fell to 0.98 level from 1.08 levels on the back of Call writing at 58,000-58,500 levels.
• Momentum Indicator – RSI has fallen below the level made on 24-October, suggesting weakening of current uptrend.

Note : It is advisable to book profit in the strategy when ROI exceeds 20 per cent.  (Disclaimer: Nandish Shah is a senior technical/derivative analyst at HDFC Securities. Views expressed are his own.)