Consider a bull calendar spread on ITC

KS Badri Narayanan | Updated on December 23, 2019 Published on December 23, 2019

The outlook for ITC (₹241) remains negative. The stock finds crucial support at ₹236 and the major one at ₹192. ITC finds immediate resistance at ₹256 and the major one at ₹305. A close above latter will change outlook positive for the stock. After underperforming for quite some time, we feel the chance of ITC turning resilient is very high.

F&O pointers: ITC futures saw a rollover of about 49 per cent to January series. The ITC January futures also commands a premium, signalling long rollovers

Option trading indicates a range of ₹235 to ₹250 for the stock.

Strategy: Traders could consider a calendar bull strategy using 240-strike. Traders should sell 240 call of the current month and simultaneously buy the January series. They closed with a premium of ₹3.45 and ₹8.75. So, this will cost traders ₹12,720 to initiate the strategy. Market lot for ITC contracts is 2400 shares.

The maximum loss would be the premium paid, and that will happen if ITC fails to cross ₹245.30 by January.

Profit potentials are high if ITC stays below ₹240 during the current series and rises sharply in January month.

Hold the position at least three weeks.

Follow up: Hold Axis Bank position as advised.

Published on December 23, 2019
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