Call ratio spread ideal to play Nifty upside: Analysts

Mumbai: Traders with a risk appetite could initiate a bull call ratio spread on the Nifty for moderate profit as analysts believe the index could face strong resistance in the current series at its record high of 12,430.5, almost 4 per cent away from Tuesday’s closing of 11,979.If the Nifty trades within the 12,120 -12,480 band until expiry, the trader makes money. A stop loss must be placed at 12,500 as beyond this level losses could multiply. But analysts feel the market might not break past its record high in the current series.The strategy consists of buying a call option at 12,100 and selling two 12,300 strike calls. The sale of the two 12,300 calls greatly reduces the upfront cost of the purchased call. Using Tuesday provisional prices, the 12,100 call costs Rs 91 a share (75 shares make one lot) while the 12,300 call costs Rs 35. The sale of two calls fetches the trader Rs 70 and this reduces the purchase price of the 12,100 call to Rs 21.The profit commences after the Nifty breaks 12,121, the lower breakeven point (LBEP), and increases until 12,300, which is the level of maximum profit of Rs 179. From here the profit shrinks steadily until 12,479, the UBEP, after which unlimited losses begin. But, according to analysts, the Nifty will face strong resistance at its record high of 12,430.5 hit on January 20.Rajesh Baheti, director of Crosseas Capital, suggests the strategy as a “sound one” as the market more than recouped all of its losses of Budget Day with a rally fuelled by short covering and some fresh buying owing to a plunge in crude, appreciation in the rupee and fall in bond yields.Rajesh Palviya, derivatives head of Axis Securities, also finds the strategy expedient given that Nifty is unlikely to rise more than 4 per cent from current levels in the Feb 27 expiry. 73949096 Some derivatives experts like ICICI Direct’s Amit Gupta expects more movement in the Nifty either side from 11,900 and suggests selling a call and put of 11,900 for February 27 expiry.The highest put concentration in the February expiry is at 11,500 while the highest call concentration is at 12,500, which analysts said make the strategy ideal to play.

from Economic Times https://ift.tt/36XoTTt