Strategy Positions:

Sell 1 lot Bank Nifty 20 October 38200 Put at 82 & Sell 1 lots 20 October 40400 Call at 80, Total premium in-flow: 162; Target: 20; Stop loss: 250.

Rationale:

The banking index gained marginally last week and largely consolidated near 39,000 levels despite continued depreciation in rupee and rise in bond yields. Outperformance was seen from the stocks like

, First and , while heavyweights saw some consolidation ahead of their quarterly numbers. We expect the banking index to continue its consolidation, where declines towards 38,500/38,800 remain a buying opportunity.

Due to the continued resilience shown by the banking index, the futures open interest has been relatively lower in Bank Nifty, and fresh shorts were not seen during the week. However, stock-specific significant Call writing positions are visible among PSU and private sector heavyweights. Hence, we may see limited upsides in this pack.

On the data front, Bank Nifty ATM strikes held significant Call writing positions, and despite a sharp move seen on Friday, no major closure was observed. We believe a move towards 40,000 can be expected in the banking index. However, a runaway move seems unlikely.

We feel in the coming days, 1000 point of range bound sessions cannot be ruled out, and traders can go for short strangle where profit will be made within the 38050-40500 range. However, one needs to be careful on both sides as strategy will start making loss if Bank Nifty moves above or below the given range.

A trader will be in maximum profit if Bank Nifty closes between 38,050 and 40500 on the 20th October expiry.

Raj Deepak Singh is analyst – F&O at ICICIdirect