Nifty Bank June futures (35,632) might rally to 36,600 and possibly to 37,700 from where it may resume the downtrend
I’ve sold Nifty Bank June contract at 34,400. Should I hold or exit or average? Please guide me.
The Nifty Bank index (35,613) breached a critical resistance at 34,800 last week and gained 3.9 per cent. It can extend the gain to 36,500 and 37,500. Correspondingly, the Nifty Bank June futures (35,632) might rally to 36,600 and possibly to 37,700 from where it may resume the downtrend.
The derivatives data hint at some bullish undercurrent. More put writing can be seen over call writing in Nifty Bank options, meaning that participants are not expecting too much on the downside. Also, the shorts that have dragged the contract over the past couple of weeks seem to be exiting quickly.
So, we advise you to exit the short now and book loss. Consider fresh shorts on Nifty Bank futures when it rallies to 36,600. When the contract rallies to 37,700 add more shorts and buy 38,000 call options (monthly expiry) as a hedge. Number of lots in call options can be equivalent to that of the short futures. For instance, for two lots of futures short, buy two lots of calls. You can hold these shorts for a target of 33,000. But liquidate all legs of this strategy if the futures see a daily close above 38,500.
Alternatively, if you have enough margin to withstand more drawdowns, hold your short but buy equivalent amount of 38,000 call option. Thereafter, if the contract moves up to 36,600 and 37,700 follow the trade strategy as mentioned above. Note that buying call option can bring down your futures margin obligation.
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Published on May 28, 2022