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Nifty likely to head towards 18,500; deploy Bullish Call Spread strategy: ICICIdirect

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Strategy Positions:

Buy 1 lot Nifty 25 November 18350 Call at 94 & Sell 1 lots 25 November 18550 Call at 23, Total premium in-flow: 71; Target: 200.

Rationale:

-The Nifty closed the week marginally red after 5 weeks of consecutive gains as markets came under pressure. Apart from index heavyweights from BFSI and Technology, almost all the sectoral indices closed the week in the negative territory, with FMCG and

-Auto space underperforming the most. Broader markets have also remained under pressure, and despite Nifty managing to afloat near highs, mid-cap and small-cap indices moved to their monthly lows. Going ahead, we expect Nifty to respect 18000 levels and stage a fresh upward move amid broader market recovery.

-From the data front, the continued decline in IVs has prompted options sellers to move at ATM strikes. For the first time in the last few weeks, we have a significant Call base compared to the Put options bases, with 18400 Call strikes holding more than one crore shares. The weakness seen on Friday and continued pressure at higher levels during the week might have prompted such a high short Call OI.

-The VWAP of the November series is placed near 18200 levels, which are likely to act as immediate support and we can expect a fresh up move. Also, considering settlement week, we expect the market to witness short covering and move higher. A further leg in the recovery might be seen if Nifty moves above 18400 levels once again, which should take markets towards fresh highs.

-As we are keeping our view bullish hence we advise traders to go for a Bullish Call spread options strategy. It is 2 leg option strategy and consists of buying one ATM strike of the Call option and selling one higher strike of a Call option.

-Keeping the target of 18550, we feel the trader can go for a bullish Call Spread strategy where maximum profit will be made at 18550.

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