Stocks

A bull call spread on Glenmark Pharma may pay

KS Badri Narayanan | Updated on December 02, 2019 Published on December 02, 2019

The long-term outlook for the Glenmark Pharmaceuticals (Rs 337.30) stock will remain negative as long as it trades below ₹681. In the short-term, the stock may try to bounce back. It finds immediate support at ₹317 and a crucial one at ₹280. A close below the latter could trigger another bout of selling that could drag Glenmark Pharma below the ₹250 level.

On the other hand, Glenmark finds an immediate resistance at ₹361 and a close above this level has the potential to lift the stock to ₹426.

F&O Pointers

The Glenmark Pharma December futures shed its open positions on Friday, along with a fall in the share price. This signals traders’ lack of confidence in the stock, as they unwind their positions. Options trading indicates a range of ₹320-400 for the stock.

Strategy

Traders could consider a bull-call spread on Glenmark, as we expect a bounce back from the current level. This strategy can be initiated by selling the ₹350-call option, while simultaneously buying the ₹340-call. These options closed with a premium of ₹14.05 and ₹18.20 respectively. That means traders need to incur an initial cost of ₹4.15/contract or ₹4,150 (as the market lot is 1,000 shares).

Maximum loss is the premium paid (₹4,150) if the stock slips and closes below ₹340 at the time of expiry or settlement. On the other hand, a maximum profit of ₹5,850 is possible if Glenmark closes above ₹350. We advise traders to hold the position for at least three weeks.

Traders with a high-risk appetite could consider going long on Glenmark Pharma, with a stop-loss at ₹317 initially. And if the stock opens on a positive note on Monday and stays above ₹346, shift the stop loss to ₹338. With a trailing stop loss, traders could aim for a target of ₹361.

Published on December 02, 2019
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.