Bank Nifty may consolidate, buy decline towards 40500-40700: ICICIdirect

Strategy Positions:
Sell April 13 Bank Nifty 41,100 Call at 235-240 & Sell April 13 41,100 Put at 270-274; target: 50; stop
loss: 400; time frame: till expiry.

Rationale

.Bank Nifty also extends its gains to move its highest levels in almost a month amid continued outperformance from the private sector heavyweights. PSU banks joined the move after a pause in policy rates by RBI. However, a major covering move was experienced in the heavily beaten down rate sensitive stocks from Realty and Financials. Going ahead we expect some consolidation in Bank Nifty where declines towards 40500-40700 can be utilised for buying.

• The Bank Nifty futures saw sharp covering and open interest in April series has declined to nearly 22
lac shares from 35 lakh shares seen at the inception of the series suggesting the current move due to
short covering. However, we feel on the upsides 41500 will act as an immediate hurdle.

• From the options perspective, both Call and Put 41000 strike holds the highest open interest base and
despite bank nifty trading above it, no major closure was experienced. Hence a consolidation is more
likely to be seen in the coming week ahead of results from heavyweights like HDFC Bank.

• Finnifty is also experiencing similar kind of writing at ATM strikes which indicates that the coming
weekly expiry is expected to settle in the range of 18400-18500 levels.

• As we are keeping our view range bound hence we advise traders to go for short straddles. It is a 2 leg
option strategy and consists of selling one ATM strike of Call option and Put option.

• Trade will be in profit if the expiry comes between the range of 40600 to 41600 levels. However,
traders should be cautious once the given range break

Pay-Off Diagram:

(The author is Analyst – F&O, ICICIdirect)

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