F&O Manual: Employ bull call ladder as upside capped for the week
Narrow range price formation in Bank Nifty from the last two trading sessions indicates that buyers and sellers both are being conservative and waiting for a decisive range breakout
The Nifty started the new year on a positive note thanks to some good news coming to the metals sector. The index rose 92.15 points or 0.51 percent to 18,197.45. The near-month Nifty futures closed at 18278.70. On daily charts, it formed an Inside Bar or a Harami Pattern. Formation of such a pattern indicates a tussle between bulls and bears and consolidative nature of the market but at the same time declines are also being bought. (Blue bars reflect volume while golden open interest (OI).)
2/6
On the option front, 18000 remains the biggest support for the index. During the day, out-of-the-money (OTM) strikes saw greater activity for both puts and calls on the month-end expiry contracts. Heavy put writing was seen at 18300 level, a sign of pressure. Chandan Taparia, Head - of Technical & Derivatives Research at Motilal Oswal, said a bull call ladder spread is suggested with the view that declines are being bought and the upside is likely to be capped for this weekly expiry. He suggests to buy Nifty 18200 Call, sell 18350 Call and sell 18450 Call. He added one should Initiate this strategy at cost of 35-40 points and reward around 100 points. (Bars reflect change in OI during the day. Red bars show call option OI and green put option OI.)
3/6
Bank Nifty also closed with gains of half a percent at 43,203.10. It failed to surpass the previous day’s high but was finding support near 42,950-43,000. Narrow range price formation from the last two trading sessions indicates that buyers and sellers both are being conservative and waiting for a decisive range breakout. Now it has to hold above 43000 zones to witness a move towards 43500 then 43750 zones, said Taparia. (Bars reflect the change in OI during the day. Red bars show call option OI and green put option OI.)
4/6
Stocks from the metal sector were in greater focus today. SAIL, Hindustan Copper, Tata Steel, Nalco were those that saw massive long buildup. A long build-up is a bullish sign that happens when open interest and volume increase with the rise in share price. (Bars reflect change in OI during the day. Red bars show call option OI and green put option OI.)
Power Finance Commission was also in the spotlight. Call writers and buyers were especially active in both OTM and the money (ITM) strikes. Put writing was seen in OTM strikes. Taparia pointed out that there is a positive setup in Jindal Steel, Tata Steel, REC, IDFC, Ashok Leyland, AB Capital and Hindalco. (Bars reflect change in OI during the day. Red bars show call option OI and green put option OI.)
6/6
MCX on the other hand saw a massive short buildup. The short build-up is a bearish sign that takes place when the price of a stock falls, along with high open interest and volume. Among others that saw short buildup were Dr. Lal Pathlabs, Page Industries, and Asian Paints. (Bars reflect the change in OI during the day. Red bars show call option OI and green put option OI.) Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Shubham Raj has five years of experience covering capital markets. He primarily writes on stocks with special focus on PMS-AIF industry, telecom and new-age companies. His last stint was with The Economic Times where he wrote on stock markets and led IPO reportage.
