The long-term outlook for Bank Nifty (18,617.8) is positive and it can reclaim its peak of 20,907, as long as the index holds above 16,060. But, a close below its immediate support of 17,502 can drag it back to 16,060.
F&O pointers: Bank Nifty July futures shed 11.45 per cent or 2.5 lakh contracts in open interest on Wednesday, despite the index gaining 2.4 per cent. Option trading indicates a range of 18,000-19,000 for Bank Nifty.
The event: The RBI will meet on April 7 to discuss the monetary policy. Though the expectation is a status-quo stance, a surprise rate cut can trigger a momentary rally in Bank Nifty.
Strategy: Traders can consider a long strangle on Bank Nifty by buying 20,000-call and 17,000-put, which closed on Wednesday at ₹65 and ₹32 respectively. Profit will be unlimited if Bank Nifty swings in either direction.
As the market lot is 25, the total outgo would be around ₹2,450, which can be the maximum loss, if the index settles between the strike prices at the time of expiry. A close above 20,100 or below 16,900 will yield positive results.
Given the modest policy expectations, the chances that Bank Nifty will hit either level is high.
Follow-up: Hold SBI positions.
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