Bank Nifty (12,533.1): Bank Nifty is ruling at crucial level. It has immediate support at 12,130 and resistance at 12,755. If it sustains the current level, it has the potential to breach its previous high of 12,961. A close below 11,210 will change the long-term outlook to negative for the index. In that event, it can decline to 10,050.

F&O pointers: Bank Nifty May futures added fresh shorts on Friday. Option trading indicates a positive bias, as open interest accumulation is less on calls due to the unwillingness of writers. On the other hand, heavy accumulation in 12,000 put indicates strong support at that level.

The event: The RBI is meeting on May 3 to decide on rate issues. Analysts are expecting a 25 basis points cut in interest rate.

Scenarios: a) If the RBI surprises marketmen with higher percentage cut, then the Bank Nifty will surge sharply; b) If the apex bank leaves the rates unchanged, the possibility of which is very low, then Bank Nifty will slip sharply. On the other hand, an expected rate cut of 25 bps will also depress the index, as it had seen a sharp surge in recent times.

Strategy: Traders can consider long strangle on Bank Nifty by buying 13,000 call and 12,000 put, which closed on Friday at Rs 128.25 and Rs 151 respectively. Profit in this strategy is unlimited if Bank Nifty swings wildly in any one direction, i.e., either above 12,815 or below 12,250. In other words, a swing of just 4 per cent on either side will earn profitability.

As the market lot is 25, the total outgo would be around Rs 6,800, which could be the maximum loss in the strategy. That will happen if Bank Nifty settles between the strike price.

( Note: Feedback or queries (on positions) may be sent to blfuturesoptions@gmail.com by Sunday noon. Replies will be published on Monday.)

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