Playing Bank Nifty ahead of US Fed meet

A day before the domestic market gets to know the US Fed’s decision on hiking a key interest rate, F&O analysts at IIFL and Motilal Oswal are suggesting a bear put spread on Bank Nifty to risk-lovers.

Buy a 16000 strike Bank Nifty put option at Rs 183 per share and sell two 15500 puts for a combined Rs 150 a share, resulting in a net outgo of Rs 33.

The maximum gross profit is Rs 467 (500-33) a share if the index closes at 15500 at expiry on December 29. But losses will be huge if Bank Nifty falls below 15033 (15500-467), or 8.3% below Tuesday’s closing of 16399. If Bank Nifty ends above 16000, the maximum loss is Rs 33 a share.

The strategy’s akin to a client having to risk Rs 990 (33×30) a lot for raking in a gross Rs 14,010 (467×30). It assumes Bank Nifty would decline post Wednesday’s event.

Such a fall seems highly unlikely, feel Hemant Nahata of IIFL and Bhavin Desai of Motilal Oswal.

Bank Nifty has fallen 12.5% in the year to date against the 7% fall in Nifty.