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Below the Quote on Weekly Derivative Outlook by Dhirender Singh Bisht, AVP – Equity Technical Research, SMC Global Securities

Auto sales numbers surprised the market, triggering buying activity in auto shares last week, which helped the market close on a positive note for the week. The Nifty ended with an approximate gain of 0.8%, while the Bank Nifty closed in the red, down by a slight 0.6%. Most sectorial indices closed in the green, with the Consumer Durable, Financial Services, and Auto sectors emerging as the top gainers for the week. Conversely, the Realty and Banking sectors were the main laggards. In the derivatives market, highest call open interest for Nifty seen at the 24,500 and 24,200 strikes, while the notable put open interest was at the 24,000 and 23,700 strikes. For Bank Nifty, the prominent call open interest was seen at the 52,000 and 51,500 strikes, whereas notable put open interest at the 51,000 strike. Implied volatility (IV) for Nifty's call options settled at 10.99%, while put options conclude at 14.36%. The India VIX, a key market volatility indicator, closed the week at 13.54%. The Put-Call Ratio Open Interest (PCR OI) for the week was 1.40. From a technical perspective, Nifty support is anticipated around 23,700, while resistance is expected at 24,400. On charts, the Nifty continues to trade below the 100 EMA (Exponential Moving Average), after facing resistance at this level. Similarly, the Bank Nifty also encountered resistance at its 100 EMA and saw a correction. The Nifty bounced back from its 200 EMA after a false breakdown on the daily chart, while the Bank Nifty tested the 200 EMA as support and also rebounded. Overall, the structure of the Nifty is improving, suggesting a potential further bounce from this point. In addition to the technical outlook, there has been positive news flow in the banking, transport, and logistics sectors, with Jefferies releasing an optimistic report on these industries. In summary, considering the positive technical indicators and favourable news flow, we anticipate potential upside movement in the market. Therefore, we are recommending a bull call spread strategy for this week.

Bull call Spread

One strategy that traders might consider in this bullish environment is the bull call Spread. This strategy is employed when traders anticipate a rise in the price of an underlying asset in the near future. It involves buying and selling call options with the same expiration but different strike prices. Specifically, a lower price call is purchased while a higher strike price call is sold. The purchased call is typically in-the-money (ITM) or at-the-money (ATM), while the sold call is out-of-the-money (OTM). This strategy results in a net debit for the trader, as the cost of the ITM/ATM call is partially offset by the cash flow generated from shorting the OTM call.

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