Nifty Bank F&O Strategy: Move above 43,800 may create short covering

⮚ Strategy Positions: Buy- May 18 BankNifty 43,800 Call at 260-265 & Sell- May 18 44,100 Call at 140-145, Target: 300, Time Frame: till expiry.

Rationale:
• Banking index erased all the losses of penultimate Friday and moved again beyond 43500 levels as private sector banks witnessed continued accumulation. While PSU banks have shown some signs of fatigue, both midcap and large cap private sector banks helped the index to gain nearly 2.5% last week. Going ahead, we believe outperformance is likely to continue and declines towards 43200/43000 remains a buying opportunity.

• The Bank Nifty futures open interest remained subdued as no major activity was experienced in the futures segment as major action was seen in the cash segment. We expect the ongoing positive bias to continue among sectoral heavyweights till they are able to protect their Put bases. Hence near term positive bias in the banking index is likely to hold till it is trading above 43000 levels.

• On the data front, like the last couple of weeks, highest Call OI build-up is placed at 43500 strike while aggressive Put writing witnessing at same strike suggesting limited downsides. A sustainable move above 43800 levels may create one round of short covering in Call writers positions that up move can challenge its life highs of 44200.

• As we are keeping our view of moderate bullish, hence we advise traders to go for long Call spread options strategy, where the maximum loss for the trade would be Rs 3100. While strategy will be in maximum profit if the expiry comes above 44100 levels.

Pay-Off Diagram:

(The author is Analyst – Derivatives, Currency, & Commodity, ICICI direct)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)