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Traders can consider initiating a bear call spread in options of Nifty February series. This option strategy can be set by selling Nifty 6,000 call option and by buying Nifty 6,100 call options. These options were trading at Rs 102 and Rs 53.1 at the end of Friday session. Since it is a bear call spread there will be an initial inflow which in our case comes at around Rs 48.9 (Rs 102 minus Rs 53.1). This will also be the maximum profit from this strategy.
If Nifty declines further, both the call options will be worthless and the net premium collected of Rs 48.9 can be retained.
If Nifty trades above 6,149, this strategy will lose money. The maximum loss will be capped at Rs 51.1 (6100 minus 6000 minus 48.9).
Traders can close their positions if nifty declines from current levels.
India VIX, that measures the expected volatility in Nifty, closed at 13.7 compared with 14.7 last week.
Follow up: Last week we recommended bear call spread by selling Nifty 6,200 call option and buying 6,300 February call option. The strategy is already profitable.
>shaurya.mishra@thehindu.co.in
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