Technical Analysis

Bear call spread in Nifty

Shaurya Mishra | Updated on March 23, 2013 Published on March 23, 2013


The Nifty was down 3.76 per cent for the week, which was the biggest weekly loss in the last 15 months. Concerns regarding political instability and limited room to cut interest rates led to the fall. Turnover in the Nifty index increased to Rs 33,012 crore compared with Rs 29,925 crore last week and the total number of shares traded of Nifty constituents increased by 25 per cent to 81.7 crore.


Traders can consider initiating a bear call spread in options of Nifty March series. This option strategy can be set by selling Nifty 5,700 call option and by buying Nifty 5,800 call options. These options were trading at around Rs 24.5 and Rs 5.5 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 19 (Rs 24.5 minus Rs 5.5). This will also be the maximum profit from this strategy.

If the Nifty declines further, both the call options will be worthless and the net premium collected of Rs 19 can be retained.

If the Nifty is above 5,719 at the time of expiry, this strategy will lose money. The maximum loss will be capped at Rs 81 (Rs 5,800 minus Rs 5,700 minus Rs 19).

Traders can close their positions if the market corrects in the near-term. In the options segment, for March call series, 6,000 call has the highest open interest (OI) positions (89.76 lakh contracts) followed by 5,900 call (82.33 lakh).

For March put series, Nifty 5,600 put has the highest OI (78.64 lakh) followed by the Nifty 5,700 put (78.56 lakh). Difference between the call option and put options have decreased significantly indicating that the fall will not be significant before expiry (Thursday). In the futures segment, HDIL open interest (weekly basis) increased by 52.27 per cent followed by Havells India (47.49 per cent), Adani Ports (46.64 per cent), Jaiprakash Associates (36.75 per cent) and Sun TV (34.4 per cent). Open Interest for Colgate Palmolive declined by 25.38 per cent followed by GVK Power (18.77 per cent), Lupin (17.24 per cent), Indraprastha Gas (15.37 per cent) and Indiabulls Real Estate (14.3 per cent). India VIX that measures the expected volatility in the Nifty closed at 15.54 compared with 15.16 last week.

Follow-up: Last week we recommended initiating bear call spread in Nifty by selling Nifty 5,900 call option and buying 6,000 call options, the strategy is still profitable and traders who haven’t closed their position can continue to hold.


Published on March 23, 2013
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