'Buy 11,500 calls to bet on May 23, Nifty could gain 300 points'

Traders wanting to bet until the poll outcome on May 23 could buy a call option on Nifty for playing a potential 300 points rise from Friday’s close of 11,407, said analysts. This after almost all exit polls gave the NDA a majority on Sunday.This means, traders could buy a May 30 expiry 11,500 call on Monday, when the Nifty might open with a gap-up of 100-150 points. The reason for this is that the 11,400 strike straddle — cost to buy a call and put — on Friday cost Rs 581 a share. The potential upside basis for this price is 11,981 and the downside 10,819 post the poll outcome on May 23.The strategy is risky as buyers could lose the whole chunk of the premium paid.But, analysts feel that with exit polls giving NDA a clear majority, odds of markets testing the upper band of the range are substantially higher.If the market tests the 11,700 level before the actual outcome, the 11500 call will be Rs 200 in the money, yielding Rs 15,000 on every contract (75 shares). The loss will be limited to the option buy price on Monday.“I would expect the Nifty to test 11,700 until the actual poll outcome,” said Rajesh Palviya, derivatives head at Axis Securities.“Purchase of a call option till the poll outcome is a decent strategy, but one will have to square off the position before market closing on that day (May 23) if it’s a plain vanilla option,” said Chandan Taparia , derivatives analyst at Motilal Oswal Financial Services.Taparia feels a bull call spread involving purchase of 11500 call and sale of 1200 call to play post actual outcome is expedient.Analysts feel for buyers a Nifty option is safer than buying Nifty futures if the poll outcome disappoints. Loss in an option is limited to the premium the buyer pays, while returns potential are very high. Analysts also advise playing with stop losses.

from Economic Times http://bit.ly/2W97JRB