The maximum loss would be unlimited if Nifty expires above 12,085.
The markets broke its two-week winning streak with Nifty forming a small bearish candle on the weekly scale. It also negated the formation of higher highs and higher lows and broke its thirteen-day winning streak. Although, some recovery was seen on Friday on the back of which Nifty reclaimed 11,700 levels on the closing basis.
The Nifty index formed a bullish Harami candlestick pattern on the daily chart which is considered as a bullish reversal pattern. So, as long as Nifty trades above 11,650 levels, we can expect a pullback towards 11,900-12,000 levels. On the contrary, if Nifty slips below 11,650 then further selling pressure towards 11,550 can't be ruled out. Technically, the overall structure is hinting at a broader consolidation in the range of 11,650-12,000.
The momentum indicators and oscillators are very well in the buy mode on the daily scale as well as the weekly scale which indicates that the short-term trend is still positive.
The volatility index India VIX surged 5 percent to end near 21.5 levels but it is still very much in the comfort zone. Major resistance is placed at 24 levels, hence, only a move beyond the 24-25 range would be a cause of concern.
On the derivative front, a Put writing was seen at 11,600 and 11,700 strikes where the second-highest open interest is placed at 11,700 strike, which is likely to act as immediate support in the coming week followed by 11,600.
On the Call side, a fresh addition was seen at 11,800, 11,900, and 12,000 strikes, where the maximum open interest is placed at 12,000 strike of more than 32 lakh contracts. So, in the coming week if Nifty sustains above 11,800 then we can expect some short-covering move towards 11,900 and 12,000 levels. So the overall option data indicates a broader range of 11,600 – 12,000 in the coming week.
The BankNifty index traded in line with the Nifty index and formed a small bearish candle on the weekly scale. It faced stiff resistance around 24,000 levels and witnessed profit-booking from the same.
The BankNifty index found support near 23,000 levels and witnessed a strong pullback on Friday. It also formed an inside bar chart pattern on the daily chart, which indicates a trend reversal. Now, a decisive move beyond 24,000 levels will provide further momentum towards 24,500-24,700 levels. The major support is placed at 23,000 levels. Overall, we can expect Bank Nifty to oscillate in a broader range of 22,800-24,100 in the coming week.
Based on the data of the Nifty index, we are expecting a moderate upmove in the coming week where the upside seems to be limited to 12,000 levels. So, we are advising to initiate a Bull Call Ladder Spread where one can buy 1 lot of 11,800 strike at 88, simultaneously sell 1 lot of 11,900 strike at 48.5, and 1 lot of 12,000 strike at 24.5. So, the total outflow from this strategy is 15 points as per the closing price on Friday.
The maximum loss would be unlimited if Nifty expires above 12,085. The maximum profit of 85 points could be gained if Nifty expires in the range of 11,900-12,000. The lower breakeven level comes at 11,815 whereas a higher breakeven level comes at 12,085. Since the strategy is initiated with an outflow of 15 points, so the downside risk is limited to 15 points if Nifty expires at or below 11,815 levels.
Following is the payoff table:
(Nilesh Ramesh Jain, Technical and Derivatives Analyst- Equity Research, Anand Rathi Shares and Stock Brokers.)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.