Bullish Diagonal Call spread is neutral to a bullish strategy which is executed by buying long-dated in the money call option and concurrently selling short-dated out of the money call option. It is a synthetic replication of a covered call strategy.
Diagonal spreads are preferred to execute when moderate volatility is prevailing and can yield better results compared to vertical spreads.
Nifty Futures is moving in a sideways mode making Fresh Monthly low on 12th may and Fresh monthly high on 13th May. This brings the 12th May low 9045 as important reference level.
Also from Market Profile charts holds immediate supports around 9045-9065 band. And Put writers are heavy around 9000PE – May series.
Hence it is worth playing a bullish Diagonal call spread here with a limited risk – limited rewards for the 3rd week of May 2020.
Setup
Execute 9100CE Long Call – 28th May 2020 Expiry at Rs 234/lot
Execute 9200CE Short Call – 21st May 2020 Expiry at 119.70/lot
Net Debit : 114.5
Breakeven levels : 8943 – 9810
Max Profit Potential : 9200 levels
Nifty futures – May Futures
What if Scenario on 21th May 2019 Expiry
| Underlying | Expiry Date | Profit/Loss |
| 8,800.00 | 21-May-20 | -3,835.68 |
| 8,850.00 | 21-May-20 | -2,814.82 |
| 8,900.00 | 21-May-20 | -1,644.61 |
| 8,950.00 | 21-May-20 | -317.22 |
| 9,000.00 | 21-May-20 | 1,173.36 |
| 9,050.00 | 21-May-20 | 2,831.11 |
| 9,100.00 | 21-May-20 | 4,657.91 |
| 9,150.00 | 21-May-20 | 6,653.43 |
| 9,200.00 | 21-May-20 | 8,815.25 |
| 9,250.00 | 21-May-20 | 7,388.93 |
| 9,300.00 | 21-May-20 | 6,118.26 |
| 9,350.00 | 21-May-20 | 4,995.43 |
| 9,400.00 | 21-May-20 | 4,011.39 |
| 9,450.00 | 21-May-20 | 3,156.12 |
| 9,500.00 | 21-May-20 | 2,418.97 |
| 9,550.00 | 21-May-20 | 1,788.92 |
| 9,600.00 | 21-May-20 | 1,254.94 |
| 9,650.00 | 21-May-20 | 806.17 |
| 9,700.00 | 21-May-20 | 432.18 |
| 9,750.00 | 21-May-20 | 123.11 |
| 9,800.00 | 21-May-20 | -130.17 |
Setup Entry
Execute 9100CE Long Call – 28th May 2020 Expiry at Rs 234/lot
Execute 9200CE Short Call – 21st May 2020 Expiry at 119.70/lot
Net Debit : 114.5
Setup Exit ( 1.15p.m on Expiry)
Exit 9100CE Long Call – 28th May 2020 Expiry at Rs 162/lot – Net Loss – Rs 72/lot
Exit 9200CE Short Call – 21st May 2020 Expiry at 6.65/lot – Net Gain – Rs 113/Lot
Overall Gain = -72 + 113 = 41 points /Lot