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Traders can consider initiating a bear call spread in options of Nifty January series. This option strategy can be set by selling Nifty 6200 call option and by buying Nifty 6300 call option. These options were trading at Rs 24 and Rs 9 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 15 (Rs 24 minus Rs 9). This will also be the maximum profit from this strategy.
If Nifty declines further, both the call options will be worthless and the net premium collected of Rs 15 can be retained.
If Nifty trades above 6215, this strategy will lose money. The maximum loss will be capped at Rs 85 (6300 minus 6200 minus 15).
Traders should square their positions when the movement in Nifty is conducive, that is when the Nifty moves lower from current levels.
In the futures segment, January, February and March futures closed at a premium of 32, 69 and 100 point respectively compared to 46, 82 and 110 last week.
In the options segment, for January call series, 6200 call has the highest open interest (OI) positions (80 lakh contracts) followed by 6100 call (50 lakh). For January put series Nifty 5800 put has the highest OI (63.8 lakh) followed by Nifty 5700 put (62.8 lakh). Action in the option segments are indicating traders are getting cautious as shown by the rise in OI for put options.
India VIX, that measures the expected volatility in Nifty, closed at 13.4 compared to 13.6 last week.
>Shaurya.mishra@thehindu.co.in
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