Weekly Options Strategy: A close above 39,000 would be important for any short covering move on Bank Nifty

Strategy Positions:
Sell 1 lot of Bank Nifty of 6 October 39,500 Call at Rs 135 and Sell 1 lot of 6 October 37,500 Put at Rs 130. Total premium in-flow: Rs 265. Target: Rs 100. Stop loss: Rs 365.

Rationale
Outperformance of Bank Nifty turned into under-performance as all major private and PSU banks saw aggressive selling ahead of the RBI monetary policy. was the worst performer whereas traded with higher leverage positions and is prone to more selling.

As the RBI hiked key interest rates in line with street expectation, sharp recovery was seen in most of the banking stocks. It started the October series with an optimistic note and we expect the recent low of 35600 should be held if the buying momentum has to continue.

Due to elevated bond yields and depreciation in INR, we don’t expect any major outperformance and the index should perform in line with Nifty. However, at the start of the October series, the index has moved near to its Call base of 39000 and a close above 39000 would be important for any short covering move.

As Nifty started with higher OI base for October series, Bank Nifty OI base is relatively higher. IV’s fell post the policy but it’s still near 20% mark. Hence sharp moves are expected in the index in coming days and stability is expected only above 39000 levels.

(The author, Raj Deepak Singh, is Analyst – F&O, ICICIdirect)