F&O Radar| Deploy Bull Call Spread in Nifty to play a capped risk-reward amid bullish outlook
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“This sideways movement, however, has not affected the index’s underlying structural strength, as long as it continues to hold above the key pivot level of 25,970,” said Sahaj Agrawal, Senior Vice President, Head of Derivatives Research, Kotak Securities.
Last Wednesday’s market action underscored this resilience. Strong buying at the open propelled the Nifty towards the 26,200 mark, with the index ultimately closing above 26,100, further reinforcing the prevailing uptrend.
Agrawal believes that the overall outlook for the Nifty remains bullish.
“Momentum indicators now suggest upside targets of 26,350 and 26,500, as long as the 25,970 level remains protected,” he noted.
Given this setup, a buy-on-dips strategy is seen as well suited to current conditions. For traders seeking a more measured approach to potential upside, Sahaj Agrawal suggests deploying a bull call spread in the Nifty.
According to him, this strategy effectively caps both risk and reward.“Market participants are advised to stay nimble, respect key levels, and continue trading in alignment with the prevailing structure,” he said.
Bull Call Spread
Traders may deploy a bull call spread to monetise gains from a potential market rebound. It involves buying and selling call options with the same expiration but different strike prices. The purchased call is typically in-the-money or at-the-money, while the sold call is out-of-the-money. This strategy results in a net debit for the trader, as the cost of the in-the-money or at-the-money call is partially offset by the cash flow generated from shorting the out-of-the-money call.
ETMarkets.com(Based on prices as of January 1)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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