Call options point to resistance at 5200

LAST week, the Nifty ended above a key resistance level of 5100. But the index could face resistance again at 5200, as evident from the activity in call options of that strike price. Too many traders willing to write call options of that strike price means they don’t expect the market to rise above that mark. Implied volatility, a barometer of traders’ risk expectations, has fallen significantly. But any adverse global development could easily pull the index below 5000.
NIFTY
CMP: 5135.50
Strategy: Ratio put backspread
Buy 1 June 5000 put @ 62.25 Rs 3112.50 Sell 2 June 4800 put @ 28.00 Rs 2800.00 Net premium paid (50 * 6.25) Rs 312.50 This is a neutral options trading strategy created by buying an out-of-the-money put and selling two out-of-the-money puts (below current market price). This is a limited profit-unlimited loss options strategy. The maximum profit for the trader would be when the Nifty is at 4800, as both the options sold will be worthless.
The profit will be the difference in the spread added by the premium received by selling the options and deducting the premium paid on buying 5000 put ((200+56)-62.25)). The lot size for the Nifty is 50. So, the maximum profit for the investor will be Rs 9,687.50 (193.75*50). The breakeven point on the lower side will be 4606.25 (4800-193.75) below which losses will have to be incurred. And on the upside, if the Nifty closes above 5000, losses will be to the extent of the net premium paid.
RIL
CMP: 1029.95 Strategy: Bull call ratio spread Buy 1 June 1000 call @ 50 Rs 15,000 Sell 1 June 1040 call @ 25 Rs 7,500 Sell 1 June 1080 call @ 11 Rs 3,300 Net premium paid (300*14) Rs 4,200
This is a moderately bullish strategy, created by buying an in-the-money call (below the current market price) and selling two out-of-the-money calls (above the current market price). The premium received from the sale of the calls would lower the price of buying the call. The maximum profit in this strategy will be if the stock expires between (Rs 1,040-1,080), which will be to the extent of the spread minus the net premium paid ((40-14)*300) Rs 7,800. The breakeven, on the higher side, will be at Rs 1,106 on the higher side (Rs 1,080+(40-14)), beyond which the trader will lose money. The lot size for Reliance Industries in the F&O segment is 300.
WHAT TO WATCH OUT FOR
INDIA
RESULTS: Caprolactam Chemicals, Hercules Hoists & Vybra Automet will announce their quarterly earnings on Monday.
KIC Metaliks: KIC Metaliks to allot 15 lakh equity shares to promoters and non-promoter group at Rs 43.
eClerx Services: The board of eClerx Services to decide on bonus issue.
WORLD
GERMANY: Factory orders data. Analysts expect German factory orders to have increased by 1.5% in April, after a surge of 5% in March.