F&O Strategy: Buy Nifty Call Option

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Nifty 50 (20,268) hit a new life-time high of 20,291.55 on Friday before closing a little lower. The fresh breakout has opened the room for more rally in the coming sessions. Since the 14-week ATR (average true range) is around 380 points and the trend is bullish, Nifty 50 is likely to touch 20,650 this week. So, we suggest buying monthly expiry call options.

Strategy: Buy 20300-strike call of December monthly expiry. The premium of this option closed at ₹274 on Friday. So, buy one lot at the current level of ₹274 and add one more lot if the price declines to ₹175. If there is any minor correction, we might see the option price dropping.

After initiating both legs, the average buy price would be nearly ₹225. Place initial stop-loss at ₹125. When the option premium surpasses ₹350, tighten the stop-loss to ₹225. Book profits if the price of 20300-strike call hits ₹430.

Here, one needs to be watchful of the underlying index. Suppose if the option price did not rally to ₹430 even after Nifty 50 appreciating to 20,650, one should consider exiting. That is, liquidate the long calls at the prevailing price the moment Nifty 50 reaches 20,650. This might happen due to a drop in implied volatility (IV).

On the other hand, if the premium rises to ₹430 before Nifty 50 touches 20,650, we still recommend liquidating at ₹430. Such a scenario can occur due to an increase in IV.

Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading