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Derivative Strategy
Bull Spread Strategy on Bharat Forge
Buy Bharat Forge (25-Jan Expiry) 880 Call at Rs 30 & simultaneously sell 900 Call at Rs 21
Lot Size 1,000
Cost of the strategy Rs 9 (Rs 9,000 per strategy)
Maximum profit Rs 11,000; If Bharat Forge closes at or above 900 on 25-Jan expiry.
Breakeven Point Rs 889
Approx margin required Rs 30,800
Rationale:
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We have seen long rollover in the Bharat Forge Futures on Thursday, where we have seen 5 per cent addition (Prov) in Open Interest with price rising by 0.50 per cent.
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The stock price has broken out on the monthly chart to close at an all-time high.
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The primary trend of the stock is positive as stock price is trading above its 100 and 200 day EMA.
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Momentum Oscillators like RSI (11) and MFI (10) are placed above 60 on the monthly chart, indicating strength in the current uptrend.
Note : It is advisable to book profit in the strategy when ROI exceeds 20 per cent.
Disclaimer: Nandish Shah is Sr. Derivatives & Technical Research Analyst at HDFC Securities. He doesn’t hold any position in the stock. Views are personal.
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