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Last Updated : Nov 10, 2019 10:44 AM IST | Source: Moneycontrol.com

Traders should opt for Theta depreciating Bear Call Spread in Bank Nifty

Weekly Option chain is suggesting that limited downside is expected in the coming days in a form of healthy correction

Moneycontrol Contributor @moneycontrolcom
Representative image
Representative image

Chhitij Jain

Strategy set-up: Delta neutral and Theta deprecating

The roaring uptrend in the last few sessions has brought the Bank Nifty near the resistance zone, and traders need to be cautious at this juncture. High Shadow candle on the trading session of November 8 has given the first signal of pause in an ongoing uptrend. We could see the balancing of demand and supply in the next truncated week and sideways move is expected with slightly negative bias. Thus, we would prefer to go with 'Delta neutral and Theta deprecating' strategy. Investors should opt for 'Bear Call Spread'.

Close

What Option data suggests

Weekly Option chain suggests that a limited downside is expected in the coming days in a form of healthy correction. Fresh call writing has been witnessed in 30,900 and 31,100 strike price, where approximately 51,000 and 1.35 lakh contracts have been added on the short side. The immediate resistance which the banking index could face is 31,000, where cumulative open interest stands at around 3.3 lakh contracts. On the put side 30,500 strike price has witnessed fresh writing of around 2.95 lakh contracts and cumulative open interest has increased to 5.38 lakh. The overall data suggests that traders could see the banking index going through the phase of consolidation before the next leg of a rally.

Technical structure

The one-sided rally seems to be halting near the supply area of 30,801. The long shadow candle near the previous top is giving an indication that profit booking is likely in the next few trading days. The previous high of 30,801.3 has been taken out on the higher side, but failed to sustain above it on a closing basis. Weekly RSI is trading near resistance level and suggesting that a cautious approach needs to be adopted by bulls.

Strategy: Bear Call Spread (14 November 2019 Contract)

As we are trading near the supply zone after a sharp up-move. and it could make the bulls to book their profit. The next truncated week is expected to trade with a slightly negative bias, so we would advise the traders to go for 'Theta depreciating” strategy and form 'Bear Call Spread' where at-the-money ATM Call Option can be sold and out-of-the-money (OTM) Call Option can be bought to cap the loss if in case a breakout occurs.

Sell 30,800 CE at 247 - Delta and Theta (0.47 & -25.96)

Buy 31,200 CE at 96 - Delta and Theta (0.25 & -19.94)

Break-even point - 30,951

Maximum profit - 151 points

(The author is Head of Research at Rudra Shares & Stock Brokers Ltd.)

Disclaimer: The views and investment tips expressed by investment experts 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 Nov 10, 2019 07:44 am
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