F&O Radar| Deploy Bull Call Spread in Nifty to play index bullishness amid mkt volatility
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The Nifty index opened on a positive note on Tuesday and, after sinking to 25,450 levels in the first half of the session, later recovered unilaterally and established a bullish stance.
Smart buying was seen at lower levels, and the index crossed the 25,700 zone to close near its higher band with gains of around 120 points.
It formed a bullish candle on the daily frame with a longer lower shadow and has started to form higher highs over the last two sessions.
“Now, it (the index) has to hold above the 25,650 zone for momentum to continue towards 25,800, and then 25,950 zones, while supports have shifted higher to 25,550, followed by 25,450 zones,” noted Chandan Taparia, Head Derivatives & Technicals, Wealth Management at Motilal Oswal.
On the options front, Taparia noted that the maximum Call Open Interest (OI) is seen at the 25,700 and 25,800 strikes, while the maximum Put OI is at the 25,600 and 25,000 strikes. Call writing has been observed at the 25,600 and 25,700 strikes, while Put writing is visible at the 25,600 and 25,500 strikes.
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“Option data suggests a broader trading range between the 25,200 to 26,100 zones, while the immediate range is seen between 25,500 to 25,900 levels,” he added.
Nifty options setup
Overall, the index continues to ride a bullish stance, with visible bouncebacks from support zones. Chandan Taparia suggests that traders can consider initiating a Bull Call Spread strategy to benefit from the bullish outlook along with prevailing market volatility.
Bull Call Spread
Traders may deploy a Bull Call Spread to monetise 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.
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(Prices as of November 11)
Below is the payoff graph of the strategy:
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(Source: Motilal Oswal)
Also read: Tata Motors Commercial Vehicles shares debut at 28% premium. Should investors stay on board?
(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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