Go for bull call spread in Nifty

Traders can initiate a bull call spread in Nifty options. This strategy can be initiated by buying Nifty 6000 call and selling Nifty 6100 call. On Friday, 6000 call closed at Rs 44 and 6100 call closed at Rs 19. Since this is a bull call spread, it involves an initial outlay which will be around Rs 25 (44 minus 19).

This strategy has to be initiated only if Nifty trades above 5,950 for more than an hour on Monday. If Nifty does not cross 5,950 on Monday, traders can consider buying put options.

The maximum loss will be the initial investment, i.e. Rs 25, and this will occur if market closes below 6,000 at the time of expiry.

Maximum profit will be attained if market closes at or above 6,100 which is Rs 75 (6100 minus 6000 minus 25). Since we have written 6,100 call, if market goes above 6,100, gains from the 6,000 call will be compensated by the loss in the 6,100 call and thus the profit is capped at Rs 75. The strategy will break even at 6,025 (6000 plus 25).

In the futures segment, December, January and February futures closed at a premium of 40, 71.1 and 100 points respectively.

In the options segment, for December call series, 6000 call has the highest open interest (OI) positions (86.2 lakh contracts) followed by 6100 call (64.3 lakh). For December put series Nifty 6000 put has the highest OI (27.4 lakh) followed by Nifty 6100 put (8.3 lakh). Since OI in the call segment is far higher than the put segment, the gains in the index will be limited.

India VIX, that measures the expected volatility in Nifty, declined by 1.2 per cent for the week and closed at 14.9. It peaked at 16.62 on Wednesday.


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