Future Perfect: Take an interest in next month Bank Nifty call option

The near-term outlook for Bank Nifty remains bearish, as it fell 11 per cent in the last one month. The index now finds an important support at 26,573 and the major one at 24,420. A close below the latter will change the long-term outlook for Bank Nifty into negative. On the other hand, it finds an immediate resistance at 28,126 and the major one at 29,820. A conclusive rally above 31,160 may trigger a fresh rally in the index that could lift it to new highs.

F&O pointers

The Nifty Bank March futures are trading in discount at 27,782.95 as against the spot value of 27,801.45. This means strong existence of short positions. Besides, on Friday, when the index crashed 3.75 per cent, open interest positions had declined about 2 per cent signalling unwinding of long positions. Weekly options signal a range of 27,000-28,500 for the Index; on other hand, monthly options indicate that the index can reach 30,000.

Strategy

We suggest a plain vanilla call buying on Bank Nifty using a monthly contract that expires on April 30. If the index opens on positive note, traders could consider buying 29,000-April-Call option that closed with a premium of Rs 595.75. As the market lot is 20 units per contact, this would cost traders Rs 11,915. While the maximum loss could be the premium paid, profits are unlimited, if Bank Nifty bounces back sharply before expiry. We advice traders to hold the position at least till the first week of April.

If Bank Nifty opens on a negative note with sharp declines on Monday, traders could consider buying 28,000-April-Call, that is currently ruling around Rs 1,030.