Nifty moving out towards 5400

I think its time for me to eat my own words. As wrote by me in the previous post wherein I quoted that breaking past 5250 looks quiet impossible for Nifty seems to be going wrong. Nifty might break past 5200 and have a go at 5400 wherein lies the 200 days SMA (Simple moving average). The change of attitude is due to the moments in the Dow Industrial average which has just tested the 200 days SMA (Simple moving average). Leaving apart the Hangseng index of the Hongkong, all the other world stock  markets seem to be moving out of the rangebound movements they experienced in last 3 months. But any chance above 5400 seems quiet dim this year. On the other hand its quiet likely that Nifty might still not break past 5200, but it’s the least probable scenario. So then how to trade?

Nifty 5000 PE (Put European) Option quoting at 52/- while Nifty 5400 CE (Call European) quoting at 47/- could be bought in a pair making a cost of around 100/-. If the Nifty hits 5400 in the next 5-7 days, 5400 CE could be sold out at 130 or so, this is because Nifty 5200 CE (Call European) is currently quoting at 139, if Nifty moves up by 200 points, 5400 could be at strike and could be fetching around 130. At that point 5400 CE could be sold off and we could wait for the Nifty to yet again correct by some 200 points and Nifty 5000 PE then could be sold off at around 30/-. The whole deal could fetch you more than 50% returns in just a matter of half a month.

On the other hand if Nifty breaks down by 200 points then it would be ideal to square off Nifty 5000 PE at around 100/- and wait for Nifty to bounce yet again at 5200 so that Nifty 5200 CE could fetch around 25/- the whole deal could yet again fetch 25% returns. Lastly if nothing of this sort happens the premium might drop by some 13-17 Rs in the next 8 days, at which point it would be an exit point with around 20% negative returns.