Market Strategy

Long strangle best suited for Bank Nifty, now

K.S. Badri Narayanan | Updated on January 19, 2013 Published on January 19, 2013

Bank Nifty: The index is ruling at crucial level. As long as it stays above 12,105, it has the potential to breach its previous high of 13,270. It finds immediate resistance at 12,745, which is very close to current levels. However, the support is slightly far off at 12,350.

F&O pointers: The Bank Nifty January futures witnessed unwinding of long positions, while the February series saw accumulation on the long side. Option trading in current series indicates a slightly positive view, as both call and put accumulated open interest positions, and the accumulation is on the higher side in the put options.

The event: The Reserve Bank of India is meeting on January 29 to decide on rate issues. While analysts are widely expecting a 25 basis points cut in interest rate, there is some air of optimism among investing community that RBI might surprise them with higher percentage cut.

Equally, there is some scepticism also that RBI might leave the rates unchanged, as inflation is still at elevated levels. And with the recent diesel price hike, inflation is unlikely to fall soon.

Scenarios: a) Status quo stance: Bank Nifty will react adversely; b) Expected increase of 25 bps: Bank Nifty will see a secular uptrend; c) 50 bps cut: Bank Nifty will surge vertically.

Strategy: Traders could consider long strangle on Bank Nifty using February options. This can be constructed by buying 13,000 call and 12,400 put, which closed on Friday at Rs 192 and at Rs 157 respectively. Profit, however, would be unlimited if Bank Nifty swings wildly, as expected, in any one direction.

Key risk: As the market lot is 25, the total outgo would be around Rs 8,800, which could be the maximum loss in the strategy. Maximum loss will happen if Bank Nifty rules and settles between the strike price.

Profit potential: On the other hand, profit will increase if Bank Nifty trades above 13,350 or below 12,050. In other words, a swing of over 5 per cent either up or down, will entail profitability.

( Note: Feedback or queries (on positions) may be sent to blfuturesoptions@gmail.com by Sunday noon. Replies will be published on Monday.)

Published on January 19, 2013

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.