Here's a Bull Spread strategy for Bank Nifty by Nandish Shah of HDFC Sec

Bank Nifty Today: The short-term trend in Nifty Bank has turned positive as the index price has crossed its 5-day EMA

BULL SPREAD Strategy on BANK NIFTY

 

Buy BANKNIFTY (30-Jan Expiry) 49,500 CALL at Rs 652 & simultaneously sell 50,000 CALL at Rs 432

 

Lot Size: 15

 

Cost of the strategy: Rs 220 (Rs 3,300 per strategy)

 

Maximum profit: Rs 4,200 if BANK NIFTY closes at or above 50,000 on 30 Jan expiry.

 

Breakeven Point: Rs 49,720

 

Risk Reward Ratio: 1: 1.27

 

Approx margin required: Rs 14,800

 

Rationale:

 

>> Long build-up is seen in the Bank Nifty futures, where we have seen 2 per cent (Prov) rise in the open interest, with the index closing 1.08 per cent higher on Thursday.

 

 

>> The short-term trend has turned positive as index price has crossed its 5-day EMA.

 

>> Bank Nifty open interest put-call ratio is placed at an oversold level of 0.60, suggesting higher possibility of a pullback rally from hereon.

 

>> Amongst the Bank Nifty options, aggressive Put writing is seen at 48,500-49,000 levels.

   

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

 

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