Derivative Strategy
Bull Spread Strategy on Tata Power
Buy Tata Power (29-August Expiry) 470 CALL at Rs 17.4 and simultaneously sell 500 CALL at Rs 7.6
Lot Size 1,350
Cost of the strategy Rs 9.8 (Rs 13230 per strategy)
Maximum profit Rs 27,270 If Tata Power closes at or above Rs 500 on August 29 expiry.
Breakeven Point Rs 479.8
Risk Reward Ratio 1:2.06
Approx margin required Rs 22,000
Rationale:
— Long build up is seen in the Tata Power Futures where we have seen 1 per cent (Prov) rise in Open interest with price rising by 2.38 per cent.
— Stock price has broken out on the daily chart to close at all time high with sharp rise in volumes.
— Stock price has been forming bullish higher top higher bottom formation on the weekly chart.
— Momentum Indicators and Oscillators are showing strength in the current uptrend of the stock.
Note : It is advisable to book profit in the strategy when ROI exceeds 20 per cent.
(Nandish Shah is a senior technical/derivative analyst at HDFC Securities. Views expressed are his own.)
First Published: Aug 02 2024 | 6:19 AM IST
