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Last Updated : Apr 01, 2019 10:22 AM IST | Source: Moneycontrol.com

Inherent bullishness in Nifty, deploy Call Ratio Spread to maximise gains: Shubham Agarwal

PCR (Put Call Ratio) is placed at a comfortable level of 1.49. A significant move above 1.85 could see some consolidation coming in

Moneycontrol Contributor @moneycontrolcom

Shubham Agarwal

March series saw a stupendous up move in Indian stock market as the broad-based rally was seen across the board. The Nifty50 climbed 7 percent in March series. The rollover of F&O contracts for the next series was 65 percent compared to an average of 66 percent.

Bank Nifty gave a stellar move with the index rising 13.6 percent and rollover of 69 percent compared to an average of 72 percent.

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A deeper analysis of data shows that Nifty will begin the April series with open interest (OI) of 18.1 mn shares, up 21 percent compared to the beginning of March series.

Bank Nifty cumulative OI at the beginning of April series stood at 2.8 mn shares, up by 92 percent compared to the beginning of March series.

Sectors that saw the highest Roll were PSU banks (94 percent),  industrials (92 percent), cement (92 percent). PSU banks like Allahabad Bank and DCB Bank saw long addition with strong price move, and positions were carried forward to April series.

Industrial sectors saw healthy incremental OI accumulation with long built-up seen in stocks like BEML, BHEL, and Siemens and same was getting carried forward. Cement stocks like India Cements, Ramco Cements too have seen healthy rollover.

Least rollover was seen in private sector banks (78 percent). A stock like Kotak Mahindra Bank and IndusInd Bank saw a reduction in OI while RBL Bank and HDFC Bank saw built-up in position.

With result season around the corner, incremental built-up was seen in IT and energy sector. Stocks like Infosys, Just Dial, MindTree along with energy stocks CESC saw strong Price-OI activity.

Considering annual result and Lok Sabha election scheduled in April and May, India VIX is showing an uptick at 17 percent.

PCR (Put Call Ratio) is placed at a comfortable level of 1.49. A significant move above 1.85 could see some consolidation coming in.

Nifty option OI remained relatively light on Call side, highest being at 12 lakh for 11,700 strike while Put accumulation is placed at 11,600-11,500 strike. Undertone remains on the bullish side with possible sector rotation.

Clues from participant data analysis showed optimism among Foreign Institutional Investor as they are net buyers in the cash market and hold 75K contract net on index long side. Some hedges have been created to avoid any downside risk in the options segment.

Overall, data points towards inherent bullishness in Nifty with long addition in futures and upward shifting band. Thus it is prudent to deploy Bullish Strategy on Nifty. With accelerating time decay benefit in weekly option, Call Ratio Spread is recommended.

Call Ratio Spread is a bullish strategy that expects a positive move in underline. It’s an idle strategy to play for positive bias and Theta decay in weekly series.

Under this strategy, we buy 1 lot lower strike Call and sell 2 lots of higher strike Call. Maximum profit would be made at the sold strike. Risk on this strategy arises beyond upper break-even point.

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

Disclaimer: 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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First Published on Apr 1, 2019 10:22 am
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