Nandish Shah of HDFC Securities suggests 'Bull Spread' strategy on Nifty

Derivative Strategy

BULL SPREAD Strategy on NIFTY

1) Buy Nifty (03-Oct Expiry) 26200 Call at Rs 140 & simultaneously sell 26500 Call at Rs 40

Lot Size: 25

Cost of the strategy: Rs 100 (Rs 2,500 per strategy)
 

Maximum profit: Rs 5,000 If Nifty closes at or above Rs 26,500 on 03 Oct expiry.

Breakeven Point: Rs 26,300

Risk Reward Ratio: 1: 2

Approximately margin required: Rs 13,000

Rationale:

-- Long rollover is seen in the Nifty Futures, where we have seen sharp rise in the open interest with Nifty rising by 0.81 per cent to close at yet another new all time high.

-- Short term trend of the Nifty remains bullish as it is placed above its 5, 11 and 20 day EMA.

-- Momentum Indicators and Oscillators are in rising mode and placed above 60 on the weekly chart, indicating bullish trend.

-- Amongst the NIFTY options, Put writing is seen at 26000-26200 levels.

 

(Disclaimer: Nandish Shah is a senior technical/derivative analyst at HDFC Securities. Views expressed are his own.)