Home / Business / Money / Ace technician recommends this option strategy for Budget

Ace technician recommends this option strategy for Budget

Sudarshan Sukhani recommended a ‘bull call’ options strategy for the March series, which can be constructed by buying the 8800 Nifty call and selling 9200 call.

The News International Team

With the market entering the last lap before Budget season, starting with the Railway Budget tomorrow, starts, there has been much choppiness of late.

In an interview with CNBC-TV18, ace technical analyst Sudarshan Sukhani of s2analytics.com said markets were not providing a sense of direction and till the Budget was out, traders should stick to the index rather than take sectoral bets such as on the Bank Nifty.

Sukhani further recommended a ‘bull call’ options strategy for the March series, which can be constructed by buying the 8800 Nifty call and selling 9200 call.

A bull call strategy is designed for traders who believe that the market has room for some upside, and limits downside in case the view is proven wrong. The strategy is typically constructed by buying an at-the-money call option (8800 in this case) and selling an out-of-the-money call option (9200).

In a call option, buyer can choose to exercise their right to purchase the underlying security (which they will do if the security’s price has gone below the contract exercise price).

According to NSE’s latest pricing, a trader will have to pay Rs 207 premium to purchase a single 8800 call expiring in March. He will get Rs 427.45 for writing the 9200 call. As a result, the trader earns net Rs 220 premium in the strategy, which brings the Nifty’s breakeven at 9020 (8800 + 220) – 2.9 percent higher from current levels of 8767.

The maximum loss the strategy will incur, if the Nifty trades below 9020 at expiry, will be Rs 180. The upside will be capped at Rs 220 if the Nifty goes above 9200 as both options will expire worthless.

“Often the market struggles in the immediate wake of the Budget but ends up positive towards the end of the series,” Sukhani said, explaining the rationale for the strategy.

The chart below shows how the strategy pan out at various levels.

Long position (8800 call) Nifty Short position (9200 call) Net position Adjusted for premium
200 8600 -600 -400 -180
100 8700 -500 -400 -180
0 8800 -400 -400 -180
0 8900 -300 -300 -80
0 9000 -200 -200 20
0 9100 -100 -100 120
0 9200 0 0 220
0 9300 0 0 220
0 9400 0 0 220

 

Leave a Reply

x

Check Also

Rupee recovers 6 paise to 67.01

The rupee today recovered some lost ground by rising 6 paise to ...

Notes ban to have positive impact on economy

NEW DELHI: The government’s demonetisation move has led to widespread adoption of ...