F&O Manual: Employ bull call spread to capture further upsides in Nifty

Two days of buying has pushed the Nifty index close to its trading range of the last 15 days. On January 18, the index climbed 112 points to 18,165.35, surpassing a hurdle placed at 18,100 level. Some analysts believe the recovery to extend further but also caution that the upside seems capped given restricted participation and hurdles around the 18,250. (Blue bars show volume and golden bars open interest (OI).)

On the option front, for the January 19 contract, 18,000 and 18,100 saw unwinding of calls. The same strikes saw put writing as they emerged as strong support. “It sees Nifty has taken support at key levels. It has high potential for it to reach 18,250,” said Chanda Taparia, Technical Analyst at Motilal Oswal. “Traders should go for bull call spread. Buy 18150 calls and sell 18250 calls. If the index reaches 18,250, then one can go on with a naked long call position” (Bars reflect change in OI during the day. Red bars show call option OI and green put option OI.)

Bank Nifty also closed with a gain of about 0.5 percent at 42,458. Put writing was seen in out of the money strikes which now will act as a support zone for the index. “The banking index has closed above the 50-day exponential moving average. The momentum indicator has entered a bullish crossover. Furthermore, the index has remained above the 200-day moving average. On the higher end, a resistance is visible at 42500; a rally may come upon a decisive breakout above the 42500 mark," said Kunal Shah, Senior Technical Analyst at LKP Securities. (Bars reflect change in OI during the day. Red bars show call option OI and green put option OI.)

Siemens continued to see massive long buildup as OI rose further 14 percent. A long build-up is a bullish sign that happens when open interest and volume increase with the rise in share price. SAIL, Hindalco Industries and Tata Steel – all metal names – were others that saw log buildup. (Bars reflect change in OI during the day. Red bars show call option OI and green put option OI.)

ICICI Lombard General Insurance saw massive short buildup as open interest in the counter surged 16 percent while volume increased 417 percent, to the highest in month. 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. (Bars reflect change in OI during the day. Red bars show call option OI and green put option OI.)

Bank of Baroda, Tata Motors, Punjab National Bank and Adani Enterprises were others that saw short buildup. (Numbers reflect change in futures prices.)
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