Calendar spread on Bank Nifty

Bank Nifty (18,959): The outlook for Nifty Bank appears positive. As long as it sustains above 18,143, the index can extend its current rally. A close above 20,200 will trigger a fresh rally in the index. There is also a high possibility of the Bank Nifty getting volatile, ahead of the RBI’s meet in the first week of December.

F&O pointers: Bank Nifty futures closed with a premium of about 34 points vis-a-vis the spot close, signalling build-up of long positions. The Bank Nifty monthly future contracts witnessed a rollover of 9 per cent. Option trading indicates a range of 18,500 to 20,000 for the index.

Strategy: Traders can consider the calendar spread strategy. This can be initiated by selling 19,000-November (monthly) contracts and simultaneously buying the December series at the same strike price. These options closed with a premium of ₹202.1 and ₹534.85, respectively. Traders have to incur an initial cost of ₹13,310, which will be the maximum loss one can suffer in this strategy. This will happen, if Bank Nifty turns weak in December.

On the other hand, profit potential is unlimited if Bank Nifty rises sharply in the coming weeks.

Hold the position for at least three weeks. We advice traders to exit the position, if the loss rises to ₹7,500.