Markets

Consider bull-call spread on HDFC Life

KS Badri Narayanan | Updated on July 06, 2020 Published on July 06, 2020

The outlook for HDFC Life Insurance Company has turned positive after the recent gains. The stock now finds an immediate support at ₹499 and the next one at ₹453. A close below ₹422 will change the long-term outlook negative for the stock. If the current trends sustain, HDFC Life will cross its previous peak of ₹646 and can hit ₹725. We expect the stock to move in a narrow range with a positive bias.

F&O Pointers: HDFC Life Insurance futures at ₹ 572.50 is ruling slightly in premium over the spot close of ₹572.15. However, in the last two days, HDFC Life shed open positions, signalling traders prefer to book profits on gains. Option trading indicate a range of Rs 500-600 for the stock.

Strategy

We advise traders to consider a bull-call spread on HDFC Life. This can be used by selling ₹580-call and simultaneously buying the ₹570-call. They closed with a premium of ₹18.35 and ₹22.85, respectively. That means, the strategy will cost traders ₹4.50 a contract. As the market lot is 1,100 shares, traders need to spend ₹4,950, which would be maximum loss one can suffer. That will happen if the stock slips below ₹570.

On the other hand, a profit of ₹5.50 or 6,050 is possible, if HDFC Life moves past ₹580. We advise traders to hold the position till expiry or exit if the profit is achieved.

Follow-up

Hold Reliance short strangle strategy recommended last week. The strategy is currently in positive.

(Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading.)

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Published on July 06, 2020
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