F&O Radar | Deploy Bull Call Spread in Nifty to gain from positive bias
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The Nifty50 Index has been trading within a narrow range in recent sessions, hovering around its 200-day EMA, currently positioned near the 23,700 mark. However, Thursday's session witnessed a surge in activity across Financials, IT, and Auto stocks, propelling the index to a robust gain of nearly 450 points, closing at 24,188.65.
Volatility levels have declined, indicating a more stable market environment. The index has rebounded decisively from the 200-day EMA, reaffirming it as a critical mid-term support zone.
“Improving market sentiment suggests the potential for further upside, with the Nifty likely targeting the 24,500–24,600 range in the near term,” said Sahaj Agrawal, Senior Vice President: Head of Derivatives Research at Kotak Securities.
The Nifty50’s ability to sustain above its 200-EMA (23,700) remains pivotal for maintaining the bullish momentum. The technical setup suggests the possibility of further up move, he added.
On the open interest (OI) front, the maximum call concentration is seen at the 24,500 strike while on the put side, the maximum concentration is seen at the 24,000 strike. The PCR OI stands at 1.18, inkling a positive skew.
Sahaj Agrawal suggests traders and investors to closely monitor the key support for signs of a reversal in momentum and deploy a Bull Call Spread strategy to capitalize on a moderate upside in Nifty.
Bull Call Spread
Traders may deploy a Bull Call Spread to monetize gains from a potential market rebound. It involves buying and selling call options with the same expiration but different strike prices. The purchased call is typically in-the-money (ITM) or at-the-money (ATM), while the sold call is out-of-the-money (OTM). This strategy results in a net debit for the trader, as the cost of the ITM/ATM call is partially offset by the cash flow generated from shorting the OTM call.
ETMarkets.com
(Prices as of January 2)
Below is the payoff graph of the strategy:
ETMarkets.com
(Source: Kotak Securities)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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