F&O strategy: Nandish Shah recommends Bull Spread on Nifty; check details

FIIs' long-to-short ratio in the Index futures is placed at an oversold level of 0.10, suggesting a higher possibility of short covering from their side in the days to come.

Disclaimer: This article is written by Nandish Shah - deputy vice president, HDFC Securities. Views expressed are his own. Readers' discretion is advised.  Derivative Strategy

 

BULL SPREAD STRATEGY ON NIFTY

 

Buy NIFTY (11-Aug Expiry) 24300 CALL at Rs 190 & simultaneously sell 24500 CALL at Rs 102 

• Lot Size 65

 

• Maximum profit Rs 7280 If NIFTY closes at or above 24500 on 11 August expiry.

 

• Maximum Loss Rs 5720 If NIFTY closes at or below 24300 on 11 August expiry.

 

• Breakeven Point Rs 24388

 

• Risk Reward Ratio 1: 1.27

 

• Approx margin required Rs 31,500

   

Rationale

 

 

• Short covering is seen in the NIFTY Futures, where we have seen fall in Open interest along with price rise.

 

• Short term trend remains strong as NIFTY is placed above its 5 and 20 day EMA.

 

• FIIs long to short ratio in the Index futures placed at an oversold level of 0.10, suggesting higher possibility of a short covering from their side in the days to come.

 

• Amongst the options, aggressive put writing is seen at 24200-24200 levels.

 

• RSI Oscillator is in rising mode and placed above 60 on the daily chart.

 

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