Nifty Option Strategy: Consider Bull Call ladder as market eyes further gains

Strategy Positions

Buy 26 May 16300 Call at 165; Sell 26 May 16600 Call at 52.5 and Sell 26 May 16800 Call at 19.5 (1 Lot Each)

Rationale

Nifty experienced another highly volatile week where more than 400 points moves were seen on 3 out of 5 sessions. However, the short covering move seen on Friday helped Nifty close the week with almost 2.5% gains. Apart from technology, most sectoral indices closed the week in green. Going ahead, a move above series VWAP of 16,350 will be crucial for continued recovery in the settlement week.

From a data perspective, FIIs’ short positioning reduced drastically as their net shorts in Index futures have declined to 77k contracts from 1.25 lakh contracts, along with increased long positions in the stock futures segment. Hence the continuation of an up move is likely towards 16,800 if the Nifty sustains above 16,350.

We are keeping our view moderate bullish and hence, we advise traders to go for Bull Call Ladder option strategy. It is three leg option strategy and consists of buying one ATM strike of Call option and selling two higher strikes of Call options.

Keeping the target between 16,600 to 16,800, we feel traders can go for the Bull call ladder strategy where maximum profit will be made between 16,600 to 16,800. However, one needs to be careful on the higher side also as strategy will start making a loss if Nifty moves above 17,000 in the current settlement.

The trader will be in profit if the Nifty remains or expires between the levels of 16,380 to 17,020.

Pay-Off Diagram

ETMarkets.com

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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