HDFC Securities has recommended a bull spread strategy for Nifty Bank as part of its derivative trading strategy. The strategy involves buying and selling call options simultaneously for the 18th September expiry of Bank Nifty. This move is aimed at capitalizing on a bullish trend in the short term as indicated by technical indicators and market momentum.
Bull Spread Strategy Details:
- Buy Bank Nifty (18-September Expiry) 51,800 Call at ₹251.
- Sell Bank Nifty (18-September Expiry) 52,300 Call at ₹93.
- Lot Size: 15.
Cost of the Strategy:
The total cost for implementing this strategy is ₹158 per unit, translating to ₹2,370 per strategy for the lot size of 15.
Maximum Profit:
If Bank Nifty closes at or above ₹52,300 on the 18th September expiry, the maximum profit potential is ₹5,130.
Breakeven Point:
The breakeven for this strategy is ₹51,958.
Risk-Reward Ratio:
The risk-reward ratio is 1:2.16, meaning that for every ₹1 risked, there is a potential reward of ₹2.16.
Margin Requirement:
An approximate margin of ₹15,500 is required to execute this strategy.
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Rationale Behind the Strategy:
- Short Covering: A 9% fall in open interest has been observed in Bank Nifty Futures, accompanied by a 1.49% rise in Bank Nifty, signaling short covering.
- Technical Breakout: Bank Nifty has broken out from the downward sloping trendline formed by the highs of July 4 and September 3, 2024, indicating a bullish breakout.
- Positive Short-Term Trend: Bank Nifty has closed above its 5, 11, and 20-day Exponential Moving Averages (EMA), reinforcing a positive short-term trend.
- Momentum Indicators: Momentum indicators and oscillators are showing bullish signals, with readings above 50 on the daily chart, further supporting the upward trend.
- Put Writing Support: Put writing is seen at the 51,000-51,500 levels, providing additional support to the bullish sentiment.
Profit Booking Advice:
HDFC Securities advises traders to book profits once the return on investment (ROI) exceeds 20%.
(Disclaimer: Nandish Shah is a senior technical/derivative analyst at HDFC Securities. The views expressed are his own.)
