Deploy Bull Call Ladder in Nifty to play index's range
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Bull Call Ladder
ETMarkets.com
(Prices as of May 21)
Below is the payoff graph of the strategy:
ETMarkets.com
(Source: ICICI Securities)
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The Nifty index has been encountering resistance near the 25,000 mark, and analysts believe that unless this level is decisively breached, the overall trend is expected to remain sideways to negative.It has been more than a week since the Index has not been able to close above 25,000 levels and the same strike has got the highest call OI as well.Therefore, Jay Thakkar, Head of Derivative and Quantitative Research at ICICI Securities , believes that unless those levels are decisively breached, the short-term trend is likely to remain sideways.'Now, on the lower side, the Index has managed to hold on to 24,700 levels for the past 2 days and there has been aggressive put writing at the lower levels, mainly at 24,800 levels, therefore, either the Index will trade within a range of 24,800 to 25,000 or it will break out of this range,' Thakkar believes.There was a good call unwinding as well, which was witnessed from 24,900 and 25,000 strikes, which makes it possible for an upward breakout.The Index is trading just at 24,800, which is the max pain level, however, it is trading below the 25,068 level, which is the modified max pain level. Based on this, as well as the overall bias appearing to be sideways, is expected to limit the upside till 25,100 levels.With such a placement, Jay Thakkar suggests deploying a Bull Call Ladder strategy with a credit spread and limited upside up to 25,100 levels.A bull call ladder spread is an options trading strategy that extends the bull call spread by adding an additional short call at a higher strike price. It involves buying one ATM/ITM call, selling one OTM call, and selling another higher OTM call. This strategy is used when the trader is moderately bullish but wants to benefit from limited risk while also capitalising on a potential price surge. The downside risk is limited, while the upside profit is capped beyond a certain level, and excessive upward movement can lead to losses due to the extra short call.If the index closes below 24,800, the strategy will not incur a loss. On the upside, the maximum gain will be in the range of 24,900 to 25,000, amounting to Rs 7,721 or 102.95 points. The breakeven point on the upside is at 25,102.95, and the position should be exited if the index moves beyond this level. Therefore, 25,103 should be treated as the stop-loss for the strategy.(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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