Axis Bank: Implementing Bear Put Spread Option Strategy

The momentum indicator MACD for Axis Bank has shifted to a bearish stance, signaling a probable short-term downtrend. This comes as the Axis Bank stock breached a crucial support level of Rs 1,020, breaking free from a descending triangular pattern. On the derivatives front, significant short positions have been observed this week, indicating a bearish sentiment in the short term.

To capitalize on this bearish momentum, Jay Thakkar, Head of Derivatives Research at ICICI Securities, recommends implementing a Bear Put Spread options strategy. Thakkar anticipates a potential bounce in the short term due to oversold conditions in the overall market. However, he foresees selling pressure looming over the market and Axis Bank until the end of the April series expiry.

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The suggested position involves buying one lot of in the money (ITM) 1040 PE (Put Option) at Rs 24.2 and simultaneously selling one lot of out of the money (OTM) 1000 PE at Rs 9.2. Thakkar advises holding the position until the monthly expiry.

Explaining the risk-reward ratio, Thakkar notes that the maximum loss would be 15 points if the stock closes above Rs 1,025. Conversely, maximum profit of 25 points can be achieved if the stock trades at Rs 1,000 or below. The breakeven point for this strategy is Rs 1,025.

From a technical standpoint, Thakkar highlights that Axis Bank has breached its crucial support level of Rs 1,020, with next supports seen at Rs 980 and Rs 950. He emphasizes that unless the stock surpasses the Rs 1,040 level, the overall trend remains negative. Additionally, the bearish MACD momentum indicator reinforces the likelihood of a short-term bearish trend.

Analyzing the derivatives data, Thakkar observes substantial short additions in Axis Bank's derivatives, indicating a short-term downtrend. He also notes significant call writing from higher levels and an increase in put additions at the Rs 960 level, suggesting that the expiry is likely to occur within the Rs 950-1,000 range.

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