F&O Radar| Deploy Bear Put Spread in Nifty to gain from range

Nifty reversed sharply from the lifetime highs in Wednesday's trading session, however, the recovery was good enough from the lower levels which helped Nifty to recover more than 150 points from its day's low.

The rise so far appears to be a 3-wave rising structure on the hourly charts indicating that until the all-time high levels are not taken off there can be selling pressure at the higher levels.

“The short-term momentum has reversed from buy to sell indicating weakening momentum. Now, on the lower side, 24,200 is a crucial support whereas 24,400 is a clear resistance, hence the immediate range for the Index is 24,400 to 24,200 levels and beyond this the range is 24,500 to 24,000 levels,” said Jay Thakkar, Vice President & Head of Derivatives and Quant Research, ICICI Securities.

From the derivatives point of view, there has been huge call writing seen right from 24,300 to 24,600 levels and beyond, however, on the put front too 24,000 has good built up, hence the range is 24,500 to 24,000 levels.

“The PCR is not very oversold as it is trading at 0.73, so it’s a bearish sign in the short term. The max pain and the modified max pain is at 24300 and 24365 levels respectively, so these levels will act as crucial levels as above these levels if Nifty sustains then it may trade sideways to positive and vice versa,” added Thakkar.

Considering the above analysis, Jay Thakkar suggests deploying a bear put spread in Nifty to play the range.

Bear Put Spread

Bear put spread is established for a net debit (or net cost) and profits as the underlying stock declines in price. Profit is limited if the stock price falls below the strike price of the short put lower strike), and potential loss is limited if the stock price rises above the strike price of the long put (higher strike).

ETMarkets.com

(Prices as of July 10)

Below is the payoff graph for the strategy:


(Source: ICICI Securities)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)