Stocks

Consider a calendar bull-call strategy on M&M

KS Badri Narayanan | Updated on October 29, 2019 Published on October 29, 2019

M&M office. file photo   -  REUTERS

The long-term outlook will remain bearish for Mahindra & Mahindra, as long as the stock rules below ₹724. However, the short-term trend has turned positive for the stock. The stock finds an immediate support at ₹543 and the major one at ₹519. Likewise, the stock finds an immediate resistance at ₹615 and the next one at ₹688.

F&O pointers

The M&M October contract has been shedding open interests throughout the month though the underlying stock has gained sharply from a low of ₹539.75 to a high of ₹602.80. This signals that the recent rally was mainly on account of short covering. Option trading indicates a range of ₹550 to ₹600 for the stock.

Event: The board of M&M will meet on November 8 to consider the quarterly results for July-September period.

Strategy

Traders could consider a calendar bull-call spread on M&M. This can be initiated by selling the October ₹600-call (₹5.15) and simultaneously buying the November ₹600-call (₹20.50). That means traders need to shell out ₹15,350 for the strategy, as the market lot is 1,000 shares.

The maximum loss could be the initial payment and that will happen if M&M fails to sustain above ₹615.35. Profit potentials are huge, if M&M falls initially (during this month) and starts rising during the next series.

We advice traders to consider exiting the position at a profit of ₹10,000 or at a loss of ₹6,500. Hold the position, for at least two weeks.

Follow-up: Traders can book profits on Ashok Leyland.

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Published on October 29, 2019
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