Future Perfect | Bet a bull-call calendar spread on Hindalco

KS Badri Narayanan | Updated on May 26, 2020

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The long term outlook remains negative for Hindalco Industries (Rs 124.85), though in the short-term the stock may make positive strides. The stock finds an immediate support at Rs 103 and the major one at Rs 88 while immediate resistance appears at Rs 150 and move past that level has the potential to lift Hindalco towards Rs 182. The stock is now ruling at a crucial level. A conclusive close above Rs 128 could tilt the bias towards bulls. We expect Hindalco to move in a positive zone in the near term.

F&O Pointers: Hindalco futures (both May and June) are ruling in discount with respect to the spot close. But the discount is marginal. While May futures witnessed ups and downs in open interest positions, June Hindalco futures saw steady accumulation. Option trading indicates a range of Rs 115-130 for Hindalco.

Strategy: Traders could consider a bull call calendar spread on Hindalco. This can be initiated by selling 125-call of current month and simultaneously buying the next month option. They closed with a premium of Rs 2.80 and Rs 8.40 respectively. That means, it will cost Rs 5.60 a contract or Rs 19,500, as market lot is 3,500 shares per contract. That would be maximum loss one can suffer in this strategy and this will happen if Hindalco closes at or below Rs 125 even June month.

On the other hand, a close above Rs 130.80 will start yielding positive returns. The position will yield maximum profit, if Hindalco slips in this series and rises sharply from next month onwards.

We advises traders to exit if they suffer a loss of Rs 9,800.

Follow up: Sun Pharma moved on expected lines. Those who did not close their position can do immediately to book maximum profits.

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

Published on May 26, 2020

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