Nandish Shah of HDFC Sec suggests 'Bear Spread' strategy on Bank Nifty

Derivative Strategy

Bear Spread Bear Spread Strategy on Bank Nifty 

Buy Bank Nifty (30-October Expiry) 51,000 Put at Rs 360 & simultaneously sell 50,500 Put at Rs 230

Lot Size: 15

Cost of the strategy: Rs 130 (Rs 1,950 per strategy)

Maximum profit: Rs 5,550 If Bank Nifty closes at or below Rs 50,500 on 30 Oct expiry.

Break even Point: Rs 50,870

Risk Reward Ratio: 1: 2.85

Approx margin required: Rs 15,500

Rationale
 

– Short build up is seen in the Bank Nifty Futures, where we have seen 6 per cent rise in the open interest with Bank Nifty falling by 1 per cent.

 

– Short term trend of the Bank Nifty turned weak as it is placed below its 5 and 20 day EMA.

– RSI Oscillators is in falling mode and placed below 50 on the daily chart, indicating bearish trend.

– Amongst the Bank NIFTY options, Call writing is seen at 51,500-52,000 levels.

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