F&O strategy for moderate Nifty upside in Dec series | Economic Times

Mumbai: Traders and rich investors could initiate a bull call ladder to play for Nifty’s moderate upside toward 14,000, with the market breaking out of a five -day consolidation to close at a record 13,682.7 on Wednesday.The trade involves December 31 expiry options, wherein a 13,700 call is purchased, and one 13,900 and 14,100 call are sold. The sold calls sharply reduce the outflow for the 13,700 call.Assuming Wednesday closing rates, the 13,900 and 14,100 call sale fetches the client Rs 117 a share (75 shares make one lot) , which reduces the cost of the 13,700 call to a mere Rs 53 from Rs 170.The strategy banks on the Nifty not rising above 13,900-14,100. The maximum downside loss is limited to Rs 53, the debit. Maximum profit is Rs 147, while upside loss is unlimited if the Nifty breaks above 14,247."The Nifty is likely to trade at 13,900-14,000 near expiry, so the strategy is a good way of playing for moderate profit in a range-bound market," said Rajesh Palviya, derivatives head, Axis Securities.Maximum profit of Rs 147 happens at 13,900 or 14,100 expiry. At 14,100, the 13,700 call adjusted for debit is in the money (ITM) by Rs 347. The sold 13,900 call is 200 ITM while the 14,100 expires worthless. After paying off the 13,900 buyer, the client is left with Rs 147. The upper breakeven above which unlimited loss begins is 14,247. At this level the 13,700 call's adjusted value is Rs 494, that of the 13,900 call is Rs 347 and of the 14,100 call is Rs 147, or a combined Rs 494, leaving the client with nothing. This excludes brokerage and transaction charges."The market remains bullish and there is no reason to anticipate a correction as there's no sign of a reversal," said Abhishek Karande, CMT senior analyst, Reliance Securities. Private banks, FMCG and pharma are his favourite sectoral picks.