Derivatives

Go for a calendar bull call spread on Nifty

K. S. Badri Narayanan | Updated on: Nov 27, 2021
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One can expect the index to move in a downward spiral in the short-term

The short-term outlook for Nifty 50 (17,026.45) has changed bearish. The index finds a crucial support at 16,773 and the next one at 16,177. A close below the latter will even alter the medium-term outlook to negative. On the other hand, immediate resistance for Nifty appears at 17,378 and a close above will arrest the bearish outlook. However, only a close above 18,188 will change the outlook positive for the index. We expect the index to move in a downward spiral in the short-term even as the long-term bullish outlook remains intact.

F&O pointers: Nifty December futures closed at 17,052.15 against the Nifty spot close of 17,026.45. This indicates existence of long positions despite a sharp fall over the week. Trading in option indicates that Nifty could move in a broader range of 16,500-18,000.

Strategy: We are advising a strategy based on expected events such as year-end selling by foreign portfolio investors, pre-Budget rally ahead of Budget presentation for 2022-23 on February 1.

Traders could consider a calendar call spread using 17,000-strike calls of December and March 2022 series. We advise traders to sell the current month 17,000-call, which closed at ₹375 and simultaneously buying March 17,000-call that closed at ₹741.10. This will cost traders ₹18,305, which will be the maximum loss. The position will turn profitable if Nifty moves above 17,366 before March 2022. We advise traders to hold this position for a month and review it later.

Follow-up: Last week we had advised calendar put spread on Bajaj Auto. Those who haven't booked profits yet can do it on Monday.

Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading.

Published on November 27, 2021

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