Nifty option trading: Bull Call Spread strategy for this week

Rationale
Nifty gained more than 1% last week as Technology and BFSI heavyweights recovered sharply after below-than- expected US inflation numbers.

Going ahead, we expect the Nifty to retain positive bias and one can keep the stop loss for long positions to be placed near 18100 levels for further up move. The open interest in index futures remained on a relatively lower side with just 1.25 million shares despite recent additions. At the same time, the high premium in Nifty has also moderated marginally suggesting ongoing positive bias. We expect limited decline in Nifty.

On the options front, the highest Put base remained at the 18,000 strike. However, with recent up move significant positions have shifted to ATM 18,200 and 18,300 strikes. Considering sharp decline in IVs, stability can be expected and downsides should be restricted. We expect the Nifty to gradually move towards 18600 levels in coming sessions.

Sectorally, we believe stocks from the technology space to remain in limelight amid declining US bond yields. At the same time, the metal space continues its recovery amid depreciation in the Dollar index. Also beaten down stocks across the sectors are likely to witness some recovery as Nifty is moving near to its life high levels.

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

Keeping the target of 18600, we feel traders can go for bullish Call Spread strategy where maximum profit will be made at 18600.

(The author, Raj Deepak Singh, is Analyst with ICICIdirect)