HDFC Securities Recommends Bear Put Spread Strategy for Nifty Ahead of November Expiry

HDFC Securities, through its senior technical and derivative analyst Nandish Shah, has outlined a specific derivative strategy for Nifty, suggesting a bearish outlook for the November expiry series. The recommended strategy is a 'Bear Put Spread'. This involves two simultaneous trades: buying one Nifty 25500 Put option at ₹144 and selling one Nifty 25300 Put option at ₹82. This strategy is designed for traders who anticipate a moderate decline in the Nifty index.\n\nThe key parameters of this strategy are:\n\* **Lot Size**: 75 units per trade.\n* **Maximum Profit**: ₹10,350. This is achieved if Nifty closes at or below the lower strike price of 25300 on the November 18 expiry.\n* **Maximum Loss**: ₹4,650. This occurs if Nifty closes at or above the higher strike price of 25500 on the expiry date.\n* **Breakeven Point**: 25438. This is the Nifty level at which the strategy neither makes a profit nor incurs a loss.\n* **Approximate Margin Required**: ₹38,000.\n* **Risk Reward Ratio**: 1:2.23.\n\n**Rationale**: The recommendation is supported by technical indicators and market sentiment. Analyst Nandish Shah points to a 'short build-up' in Nifty Futures during the November series, indicating increased bearish positions. Open interest has risen by 27% while the price has fallen by 1.60%. Furthermore, the Nifty's short-term trend is considered weak as it trades above its 11 and 20-day Exponential Moving Averages (EMAs). The Put Call Ratio (PCR) has also fallen to 0.77 from 0.93, suggesting reduced buying interest in call options and increased bearish sentiment due to call writing at higher levels (25700-25800).\n\n**Impact**: This strategy recommendation is primarily targeted at active derivative traders who understand options trading and wish to capitalize on a potential downward move in the Nifty. It provides a defined risk and reward profile, allowing traders to limit potential losses. While it does not directly dictate the broader market's movement, it reflects and potentially amplifies bearish sentiment among a segment of market participants. The strategy is more about risk management and directional betting for traders than a fundamental view impacting the entire market. \nImpact Rating: 5/10\n\n**Definitions**:\n* **Bear Spread Strategy**: An options trading strategy where an investor expects a moderate price decline. It involves buying an option at a higher strike price and selling an option of the same type (put or call) with the same expiry but at a lower strike price. For a put spread, this limits both potential profit and potential loss.\n* **Expiry**: The specific date when an options contract becomes void and can no longer be exercised. All trades must be settled by this date.\n* **Lot Size**: The standardized quantity of an underlying asset that is traded in a single futures or options contract. For Nifty, it is currently 75 units.\n* **Open Interest (OI)**: The total number of outstanding derivative contracts that have not been closed or fulfilled. It represents the total number of active positions.\n* **Put Call Ratio (PCR)**: A trading volume indicator that compares the number of traded put options to the number of traded call options. A PCR below 1 often suggests bearish sentiment, while a PCR above 1 suggests bullish sentiment.\n* **EMA (Exponential Moving Average)**: A type of moving average that gives more weight to recent prices, making it more responsive to price changes than a simple moving average. It is used to identify trends and potential support/resistance levels.\n* **Short Build Up**: A situation in futures trading where new short positions are established, leading to an increase in open interest along with a decline in prices, indicating a bearish sentiment among traders.