'Can initiate Bull Call Spread in weekly expiry as Bank Nifty may see moderate up move'

Nilesh Jain

The markets remained volatile where Nifty started the week on a negative note and rebounded sharply after taking the support near 11,200 levels. The Nifty index is showing resilience and every decline is getting bought into.

The Nifty index also negated the formation of a lower top and lower bottom formation on the daily chart and reclaimed 11,400 levels on the closing basis which is a positive sign. On the higher side, it has an immediate barrier of 11,500 levels and a move above the same will take Nifty towards 11,550-11600 levels.

The momentum indicators and oscillators are very well in the buy mode on the weekly scale which indicates the overall undertone remains positive.

Nilesh Jain

Technical and Derivatives Research- (Equity Research)|Anand Rathi Shares and Stock Brokers

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The broader markets have also shown smart recovery from the lower levels and the overall setup still looks positive. Thus, the defensive trader needs to adopt a stock-specific approach from this space.

The volatility index "IndiaVIX" fell by 6 percent to end below 21 levels and the overall cooling off in the volatility is giving comfort to the bulls and a further drop will support the bulls and pull the index higher. Only a move beyond the 25-30 range would be a cause of concern.

On the derivative front, a huge amount of Put writing was seen at 11,400 and 11,300 strike where the highest open interest is placed at 11,400 strike, which is likely to act as immediate support in the coming week followed by 11,300 strike.

A fresh call writing was seen at 11,500 strike which also holds the maximum open interest and also likely to act as an immediate hurdle. If Nifty breaks above 11,500 then we can expect some short-covering move towards 11,600 levels. So the overall option data indicates a tug of war between Call and Put writer and expect Nifty to oscillate in the range of 11,300 - 11,600 in the coming week.

The Bank Nifty index remained under pressure throughout the week and underperformed compared to the Nifty index.

Bank Nifty formed a Doji candle for the second consecutive session which hints of a potential reversal from the lower levels and a decisive move beyond 22,700 levels will provide further momentum towards 23,000-23400 levels in the coming weeks. The major support is placed at 22,000 levels on the daily chart.

Based on the data, we are expecting a moderate upmove in the Bank Nifty index in the coming week. So, we are advising to initiate a "Bull Call Spread" in the coming weekly expiry, where one can buy 1 lot of 22,600 strike at 302, simultaneously sell 1 lot of 23,000 strike at 150. So, the total outflow from this strategy is 152 points as per the closing price on Friday. The maximum profit of 248 points could be gained if Bank Nifty expires at or above 23,000 levels. The breakeven of this strategy would be 22,752. 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.