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| The Nifty is definitely in a strong bull trend, having risen to a recent high of 1527 and closed on Friday at 1523.
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| On the downside, if there's a reaction it should stop at 1480. It's difficult to set upside target since last week's upside target of 1520 has already been achieved.
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| We are also encountering two of common problems in this sort of a bull run. There is no liquidity above 1520 in the options market and both put and call options are priced too high close to the money.
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| We can also expect a further rise in call prices near the money on Monday even as liquidity develops above 1520.
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| The October Nifty future is probably worth buying since it's very close to spot at around 1528. November is trading around the same levels and December is at 1533 but liquidity is low.
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| Normally we've noticed that this sort of situation where the index surges with plenty of time left for expiry, leads into backwardation.
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| If that pattern holds, October future is worth buying along with a sale of November future. Be prepared to reverse the trade.
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| The other option is to try and set up bull spreads by selling puts. For example, if we sell 1520p (34.2) and buy 1510p (28.8) we receive an initial income of 5.4 and face a potential loss of 4.6.
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| However, this is a risky trade since this position could be triggered by a small intra-day fluctuation.
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| Further from the money, the put chain is too tightly priced to be attractive for somebody who's trying to build a bull spread.
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| Stocks: Among stocks available in the derivatives segment, there could be continued bullishness in BSES, Hindalco, Infosys, ITC, L&T, Maruti, Mahindra, Satyam, Tata Tea, Tata Motors, Tisco and Wipro.
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| All these stocks may be worth picking up in the futures segment. It is also possible to do futures-calendar spreads with long October future versus short November future.
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| There are also interesting trades available in BPCL and HPCL. Both stocks have descended close to support levels. In BPCL, where spot is at 352, the technical perspective would be either a drop till 330 or a rise till 375.
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| At current prices, we can sell a short straddle of 350c (15.65) +350 p (11.65) for an initial income of 27,3 and symmetrical payoff that goes into the red outside 320-380. This should be safe enough if our technical perspective holds.
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| If you wish to hedge, take a long 370c (7.05) and a short 380 c(6.35) for a bull spread at strike price of 370 for a total outlay of 0.7.
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| Also take a bear spread with a long 340p (4.5) and a short 320p (2.25) for a bear spread with a strike of 340 and an outlay of 2.25.
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| When you combine these, you hold a synthetic strangle for a total outlay of 2.95 that will prevent your initial short straddle from going into the red while cutting potential profits by 2.95.
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| A similar but slightly different trade may be possible with HPCL where spot is at 336 and the stock could move anywhere between 320-360.
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| A short straddle of short 340c (15.60) and short 330p (11.75) yields 27.35 with a position that stays profitable between 303-367.
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| It can be covered by a cheap bull spread of long 370c (5.3) and short 380c (4.2) and a cheap bear spread of long 320p (7.1) and short 310p (5). The total outlay would be 3 and this would cover unlikely moves away outside our 320-360 zone.
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| BSES has shot to 439. Unfortunately there is no option liquidity above 440c (12). This price is likely to rise on Monday. Don't take a position here in the options segment until there is liquidity until at least 470 levels.
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| In ITC, (spot at 889) a standard bull spread is possible with a long 880c (31) and short 900c (23.7). Alternatively, take a long 900c and wait for liquidity until the 940 mark.
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| In Larsen (spot: 389), a long 390c (7) is a possibility. This would have to be a naked position because there is no liquidity above that level. However, the trend is strong enough for a naked position, which could be covered once liquidity develops.
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| M&M (spot: 290) offers bull spreads with long 290c (15.45) and short 300c (11.15) or short 310c(7.15).
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| This means an outlay of 4.4 for a potential profit of 5.6 or an outlay of 8.4 for a potential profit of 11.6.
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| Maruti (spot: 269) also offers liquid bullspreads with long 270c (13.4) and short 280c(9) for an outlay of 4.3 and a potential profit of 5.7.
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| Infosys (spot: 4630) could move between 4600 and 4850 in the near future. Given the bullish possibilities, take a long 4600c (237) and a short 4700c (195) for an outlay of 42 and a potential profit of 58.
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| Unfortunately, there's no liquidity above 4700. You can also sell puts to create a bull spread by taking a short 4600p (176) and long 4500p (139). This would have a potential loss of 63 for an initial payoff of 37.
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| Satyam (spot: 282) has shot up. It's likely to hit resistance at these levels, but there is a possibility that it will rise until around the 300 mark.
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| On the downside, SCS could react until the 265 level. It's worth trying a bull spread of long 280c (16.45) and short 290c (12.1) for an outlay of 4.35 and a potential profit of 5.65.
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| Selling the 270p (8.9) and buying the 260p (5.5) is also a possible trade since the position shouldn't trigger and it yields 4.4 for a potential loss of 5.6. |
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