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

FIIs long to short ratio in the Index Futures stands at an oversold level, suggesting a higher possibility of a short covering, HDFC Securities' Nandish Shah said

Derivative Strategy

Bull Spread Strategy on Nifty 

Buy Nifty (20-October Expiry) 25,200 Call at ₹170 and simultaneously sell 25,500 Call at ₹50

 

• Lot size: 75
• Cost of the strategy: ₹120 (₹9000 per strategy)
• Maximum profit ₹13,500, If Nifty closes at or above 25,500 on 20 October expiry.
• Breakeven point: ₹25,320
• Risk Reward ratio 1: 1.5
• Approx margin required: ₹37,800

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Rationale:

• Long build up is seen in the Nifty Futures, where Open interest rose by 1 per cent along with price rise of 1 per cent. 
• Short term trend of the Nifty remains positive as it is placed above its 5, 11 and 20 day EMA.
• Put writing is seen at 25,000-25,100 levels.
• FIIs long to short ratio in the Index Futures stands at an oversold level of 0.09, suggesting higher possibility of a short covering by them in the coming days.
• 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.)