Buy PSU Banks like Bank of India and Sell Bank Nifty

The banking stocks have taken a tremendous beating in the last one month. The maximum brunt is taken by PSU Banks whose stocks capitulated by as much as 25%. Few of them are mentioned below:

• Allahabad Bank - 28%
• Bank of India - 24%
• Union Bank - 22%
• PNB - 18%
• Bank of Baroda - 17.5%
• SBI - 8%

Private Sector banks, though, have performed relatively better. The fall for these banks were in the range of 5-10%.

Considering the given scenario, it is recommended to buy Bank of India and Sell Bank Nifty. The reason why Bank Nifty is considered because the index has equal weightage for Private Banks and PSU banks. So if PSU banks outperform private banks, the chances of getting favorable returns are high. 

Also the deviance between Bank of India and Bank Nifty is huge and this is likely to be filled in the coming days.

Moderate Risk users can adopt the following strategy:

1) Buy Bank of India 230 Call and Sell 240 Call.

2) Buy Bank Nifty 11300 Put and Sell 11000 Put.

The given strategy comes with maximum loss scenario of 6000 Rs and maximum profit of 12000 Rs.

Wishing you a happy trading!!