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    Options strategy to play Bank Nifty

    Synopsis

    The provisional closing rate of a 20,000 call on Monday was 875 a share.

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    However, the risk becomes unlimited above 21,747 because of the sale of the extra 21,000 call. Rajesh Palviya of Axis Securities advises a stop loss at 21,800 to prevent “unlimited” loss.
    Mumbai: Traders with a keen eye have spotted a strategy of earning a quick buck on June 25 expiry Bank Nifty Options, while actually getting paid for undertaking it.

    Called a bull call ladder, it involves buying a 20,000 call and selling a 20,500 call and a 21,000 call. The provisional closing rate of a 20,000 call on Monday was 875 a share (20 shares make a contract), while the sale of the 20,500 and 21,000 calls fetches the trader 1,122 a share based on closing rates Monday.

    Apart from covering her cost for the 20,000 call, the trader is left with a credit of 247 a share. Though she has to put up collateral against sale of the two deeper strike options, the credit actually increases her breakeven above which unlimited losses begin in case Bank Nifty rises more than anticipated.

    Thanks to the credit, her maximum effective gain rises to 747 a share from 500, which happens at 20,500-21,000. She loses only if Bank Nifty trades above 21,747 in the current series, which Chandan Taparia of Motilal Oswal feels is “unlikely” to take place after the stellar rally in the “past few sessions”.

    In case the Bank Nifty remains flat or expires at 20,000, or below, the trader keeps the 247 credit.

    However, the risk becomes unlimited above 21,747 because of the sale of the extra 21,000 call. Rajesh Palviya of Axis Securities advises a stop loss at 21,800 to prevent “unlimited” loss.
    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

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    1 Comment on this Story

    Raja Sadarangani42 days ago
    options are tricky the premium goes on reducing as expirey comes but if you know how to trade it is possible to make good profits, accordingly bank nifty and nifty are near resistance but bulls are bulls
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