See limited upside for Bank Nifty from hereon: HDFC Sec

The Bank Nifty closed at 10,083.80 on Thursday falling 184.05 points or 1.8% on the back of unwinding of long positions.  

"Write the 10,500 call in the Bank Nifty which was quoting at somewhere around Rs 120. Sell 10,500 call at around Rs 160 and hope to make money on this when the market dips," he suggested.

Below is the edited transcript of Sharma’s interview with CNBC-TV18.

Q: How would you approach the Bank Nifty after the kind of move you saw yesterday?

A: One would expect that the markets would open up higher and therefore the Bank Nifty would also participate in that upward rally. However, the market is bipolar and the PSU banks are still under pressure. So, there is a very limited amount of upside which the Bank Nifty can see at this point of time.

So, we would like to say write the 10,500 call in the Bank Nifty which was quoting at somewhere around Rs 120. We would expect the Bank Nifty to also rise. Maybe sell 10,500 call at around Rs 160 and hope to make money on this when the market dips. So, one will have to keep obviously with stop losses or if one has bank stocks in the portfolio then this can be used as a hedge mechanism.

Q: On the subject of banks that we were talking about - you have a strategy on ICICI Bank for the day.

A: ICICI Bank is slightly different. It could surprise on the positive side. So, my suggestion there is to buy the Rs 920 call which was available at around Rs 29 and hope to sell this at around Rs 50.

Obviously, because the markets are going to go up the call wouldn’t be available at that price. It will be costlier. My suggestion would be to wait for that price to come. You only buy maybe around Rs 2-3 higher, but not much higher than that.

Q: If we do start with 80 point gap up which looks likely today above Rs 5120 - what position do you take then? Do you play for more? Do you initiate longs or do you start thinking of shorts at higher levels?

A: Very tough position to take at that point of time. My sense is if someone has been thinking that why he didn’t sell at higher levels - today will be a good day to lighten those kinds of commitments. However, we would like to short only if it goes above 5150, that is the point at which probably you can go out and short.

We must also remember the fact that the CME, Chicago Mercantile Exchange - earlier as it was known has reduced the margin on equity index funds.  So, to that extent there is further support coming up.

The ECB president has not spelt out what he will do. So, when he spells out what he will do and the market perceives that step to be a good only then perhaps there could be a second leg up to this.

We will have to wait and give the market one more day and that will be a day on which the market would not have closed below the 5,200 level for the second consecutive day. So, let’s hope for the best.