F&O Query: Should You Buy Call Option on Nifty Financial Services?

What is the short-term outlook for Nifty Financial Services? Can I go long now?


Nifty Financial Services (21,478.30): The bulls were successful in lifting the index off the support at 21,000. As there has been a bounce and that the broader trend is bullish, the probability of a rally is high. But note that there is a resistance at 21,600.

So, we would recommend waiting until the barrier at 21,600 is breached. Once this happens, the index will most likely appreciate to 22,100.

After the breakout, consider buying at-the-money call option. Our suggestion would be to go long on 21,600-call (May monthly expiry). Exit this option at the prevailing price when the index hits 22,000. Because there could be a corrective decline after Nifty Financial Services hit 22,000.

But if the index reverses and falls to 21,500 after you have bought the call options, book loss in the trade.

Alternatively, you can opt for futures long if you are comfortable with higher margin obligations. The advantage with futures contracts is the absence of time decay.

The equivalent resistance for May futures Nifty Financial Services is at 21,630. It closed at 21,529 on Saturday. Therefore, stay on the fence and buy this contract if it rallies past 21,630. Place initial stop-loss at 21,450. When the contract rises past 21,800, tighten the stop-loss to 21,680. Revise the stop-loss further up to 21,800, when the contract rises to 21,900. Book profits at 22,000.

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