The breakeven of this strategy would be 22,598. Maximum loss would be limited to the premium paid.
Nilesh Jain
Bulls regained control after pausing in the previous week. Nifty rebounded sharply after taking the support of its rising trend line on the daily chart.
Nifty also continued to make a higher top and higher bottom formation on the daily chart, which indicates that the recent low of 11,111 will act as crucial support whereas the immediate resistance of a previous swing is placed at 11,460 levels.
The Nifty index is hovering near its 78.6 percent retracement of the entire fall which is placed at 11,400 levels and a decisive move above the same will take Nifty towards 11,500 levels.
The broader markets have continued to outperform the benchmark index and looking at the structure, the overall setup still looks positive. Thus, a defensive trader needs to adopt a stock-specific approach from this space.
The volatility index 'IndiaVIX' fell by 9 percent to end below 20 levels making a lower top and lower bottom formation, which is a positive sign for the markets. VIX has cooled off over 77 percent from the highs of March and we have seen a 'V' shaped recovery in the Indian equity markets. The overall fall in the volatility is giving comfort to the bulls and a further drop would be a bullish sign for the Indian equities. It would be a cause of concern only if 'IndiaVIX' moves above 25-30 range.
In the coming week, we have F&O expiry for the August series. The options data indicates that a huge amount of Put writing was seen at 11,200 and 11,300 strikes where the second highest open interest is placed at 11,200 strike, which is likely to act as immediate support in the coming week followed by 11,000 strike.
A fresh Call writing was seen at 11,500 strikes which also holds the maximum open interest followed by 11,600 strike. If Nifty breaks above 11,500 then we can expect some short-covering move towards 11,600 levels. So, the overall option data indicates that bulls are having the upper hand and expect Nifty to oscillate in a broader range of 11,200 - 11,600 in the coming week.
The BankNifty index outperformed compared to the Nifty index and formed a small bullish candle on the weekly scale. It is also on the verge of a breakout from a consolidation where immediate resistance is placed at 22,500 levels.
Looking at the weekly closing in the Bank Nifty index, the overall setup looks positive and a decisive move beyond 22,500 levels will provide further momentum towards 23,000-23,400 levels in the coming weeks. The major support of a triple bottom formation is placed at 21,000 levels on the daily chart. Private sector banks started to join the rally where index heavyweights HDFC Bank, ICICI Bank and Axis Bank look positive on the charts.
Based on the data, we are expecting an outperformance in the Bank Nifty index in the coming week. So, we are advising to initiate a 'bull call spread' where one can buy 1 lot of 22,500 strike at 190, simultaneously sell 1 lot of 22,800 strike at 92. So, the total outflow from this strategy is 98 points as per the closing price on Friday. The maximum profit of 202 points could be gained if Bank Nifty expires at or above 22,800 levels. The breakeven of this strategy would be 22,598. The maximum loss would be limited to the premium paid.
The author is Technical and Derivatives Analyst - Equity Research at Anand Rathi Shares and Stock Brokers.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.