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Nifty likely to see a pullback towards 10,800; Deploy Bull Call Spread to maximize profit

A sharp bounce back from the level of 10300 raises the expectation of the up move towards 10800-11000 levels. The Market-wide PCR OI moved to 1.43 indicating Put writers were active again with the base formation at 10000-10400.

SHUBHAM AGARWAL | 26-Feb-18
Reading Time: 3 minutes

March series started on a positive note, Nifty ended the week with a gain of 0.37 percent. On the other hand, the February series ended on a sour note as Nifty lost over 6 percent while Bank Nifty lost 9 percent on expiry-over-expiry.

Rollover data suggest that Nifty rolled 60 percent vs. 64 percent in the last expiry whereas Bank Nifty roll stood at 64 percent to march series compared to last expiry roll of 70 percent. Poor rollover indicates a reluctance by the market participant to carry forward position to the next series.

Options data for the March series is well distributed across strikes of 10500-11000 calls. The highest being at 10700 of 29 lakh shares followed by 11000 with OI of ~27 while for Puts highest OI is at 10400 with 30 lakh shares followed by 10000 put of 35 lakh shares.

A sharp bounce back from the level of 10300 raises the expectation of the up move towards 10800-11000 levels. The Market wide PCR OI moved to 1.43 indicating Put writers were active again with the base formation at 10000-10400.

Strike-wise PCR OI too moved higher to 2.53 for 10400 and below strikes indicating support shifting higher.

Considering strong support at a lower level and the reluctance of short position being carried over to March series, pull back to 10800-11000 is expected. Thus a bullish strategy Bull Call Spread can be deployed.

Under this strategy, a trader needs to Buy Nifty Mar series 10400 CE 1 lot and Sell 10700 CE 1 lot. Bull Call Spread is a bullish strategy that is executed when one has a bullish outlook in the instrument.

Instead of buying naked call with higher outflow, one needs to sell higher strike call to particularly fund the outflow resulting in hedged strategy and a reduced Theta decay at a position level.

To Know More about - hedged from Quantsapp classroom which has been curated for understanding of options and option strategy builder from scratch, to enable option traders grasp the concepts practically and apply them in a data-driven trading approach.

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SHUBHAM AGARWAL is a CEO & Head of Research at Quantsapp Pvt. Ltd. He has been into many major kinds of market research and has been a programmer himself in Tens of programming languages. Earlier to the current position, Shubham has served for Motilal Oswal as Head of Quantitative, Technical & Derivatives Research and as a Technical Analyst at JM Financial.

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