The Nifty 50 closed above the 20-day simple moving average (SMA) after rebounding off the 50-day simple moving average (DMA) on the daily chart. Notably, while the 20-day simple moving average (SMA) was on a downward slope, the 50-day simple moving average (DMA) continued to move higher, defining the current price structure as a decline.
“We believe the bullish momentum will continue as the lower areas are now strongly protected by the bulls given Friday’s price action,” Shrey JainFounder and CEO of SAS Online, a deep discount broker, he said.
The RSI has reversed from the oversold territory of 30 to reach the neutral zone of 52, while the ADX is now above 20, indicating that momentum in the current trend is picking up. Overall breadth has improved compared to last week with the stock rising above its short-term 20 MA by 40%, while above the 50 MA is 49%.
On the other hand, open interest for next week’s expiry indicates strong writing on the PE side at 24500, 24400 and 24300, with 24500 as the high.
A new addition is seen in CE at 24,800-24,900, indicating that the downside is protected in the range of 24,300-24,500, while the upside is open in the range of 24,800-24,900.
“As we suggested last week, Bank Nifty is super bullish with a strong buying zone of 50,100-50,200. We believe that Bank Nifty’s upside in the near term is open to higher levels of 50,900-51,200, while in the medium term it can move towards a higher target of 52,000,” he said.
“Bank Nifty witnessed high writing on the PE side at 50,000-50,300, while on the CE side, we saw long accumulation at 51,000 and 51,500,” Jain noted.
“Given the directional outlook, we suggest a bullish call spread on BankNifty for August 21 expiry. Bullish call spreads benefit from two factors – a rise in the stock price and temporary short squeeze,” he recommends.
A bull call spread is the preferred strategy when a gradual increase in price is anticipated to the strike price of the short call option. A bull call spread is set for a net debit (or net cost) and profit as the underlying stock price increases.
Below are the strategy positions:
The payout chart
ETMarkets.comBelow are the statistics for the strategy.
ETMarkets.com(Disclaimer:The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of the Economic Times)
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