Bank Nifty (13,750.5): The long-term outlook for the Bank Nifty turned positive, after it rose sharply on Friday. As long as the index rules above 12,514, there is no threat to the bull run. If the index sustains above that level, it can also touch 18,000 in the medium- to long-term.

Only a close below 10,130 will change the outlook negative for the index. In such an event, the Bank Nifty has the potential to tumble to a low of 9,585 and even to 8,860. However, the possibility of the index turning weak appears rather remote.

F&O Pointers: On Friday, the Bank Nifty May futures saw an addition of about 17 per cent or 3.02 lakh contracts in open interest along with a sharp surge in value. However, farther month contracts were less active and quoted at a discount to the current month series. Option trading points to a range of 13,000-14,000 for the Bank Nifty.

Strategy: Though it is advisable to consider a plain vanilla long futures or call position, given the outlook, we advice traders to go for a short strangle mainly for the rich premiums that options command currently.

We do not see the option premiums gaining much strength. The other reason is the sharp surge in valuation of the Bank Nifty. We expect some cooling off in the price before it rises further.

Traders can consider selling 14,500 call and 13,000 put. They closed at a premium of ₹469 and ₹415 respectively.

The maximum profit is the premium collected, which works out to about ₹22,000. For that to happen, the Bank Nifty has to close between the strike prices. However, the loss can be unlimited if the Bank Nifty moves out of the above-mentioned range. A close above 15,385 or below 12,116 will start impacting the position adversely. Traders can consider exiting the position if the loss mounts to ₹12,000 (combined position). This strategy involves higher margin commitments.

Follow-up: We had advised traders to consider bear call spread on Justdial. Traders may consider holding on to the strategy.

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