Big opportunity is emerging in Bank Nifty, deploy 『Bear Call Ladder』 strategy to maximise gains

作者:Jacqueline    發表日期:2018-07-19 18:25:18

Shubham Agarwal

The Nifty50 continued its journey upwards to a new all-time high of 10,690 and ended the week with gains of 1 percent. Incremental long built-up of 13 percent was witnessed during the week.

The Nifty options data signifies the highest accumulation in 10500 PE of 81 lakh shares. Close to 15 million shares open interest (OI) is outstanding in the vicinity of 10500-10600 puts indicating vital support zone for Nifty.

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Call writers remain relatively sideways as resistance beyond 10700 is placed straight at 11000. Maximum OI for Nifty is seen at 11000 CE with 47 lakh shares.

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During the week, significant OI of 50 lakh shares were added in Put strike of 10600 followed by 10500 strikes of 31 lakh shares.

Call writers shifted their position higher from 10500-10600 to 10700-10900. Further decoding Participant activity in the Index Options it reveals that in the last 1 week, FII added 30496 contracts on net Put short side and 61105 contracts on net Call long side indicating their positive bias.

graph1

On the other end, the client (retails) created a bearish view by adding net put long of 85432 contracts and net call short of 56501 contracts. PRO participant added net Put short of 58734 contracts and net call short of 4605 contracts.

India VIX, a barometer of riskiness, continues to gyrate in the band of 12-14 percent reconfirming the strength in trend.

graph2

PCR-OI strike wise too support the bullishness. 10500 strike PCR moved higher from 1.66 to 3.64. 10600 strike PCR stands a 1.93 substantiating the strength of the trend.

Bank Nifty futures continued to move higher and ended the week with the gain of 0.50 percent and OI accumulation of 23 percent. The index made a new high of last 6 weeks at 25803. Bank Nifty options data suggest activity near 26000-26200 CE and 25700-25500 PE.

Large heavyweight banking stocks are also witnessing accumulation. With range breakout in Bank Nifty, it is expected to move higher towards 26100-26200. Thus a bullish strategy Bear Call Ladder is recommended.

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『Bear Call Ladder』 is a 『Bullish Strategy』 that is executed using ITM options for 18-Jan weekly expiry. To initiate the strategy, we need to buy 25600 CE 1 lot, buy 25700 CE 1 lot and to compensate the premium outflow we sell 「In The Money」 Call option of 25500.

Under this strategy, maximum profit is unlimited on upside above 25850 while maximum loss is when the option expires between 2 long call strike. Rising volatility is beneficial for the strategy.

Time decay is generally harmful when the stock is between lower and middle strike and helpful when the stock is surging higher.

A clear understanding of the direction of the trend and identification of a clear area of both support and resistance could add value to the pay-off.

Disclaimer: The author is CEO & Head of Research at Quantsapp Private Limited. 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.

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