Portfolio

Consider bear call spread on SAIL

K.S. Badri Narayanan | Updated on March 23, 2013 Published on March 23, 2013

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SAIL (Rs 63.4): The outlook for SAIL turned weak after the stock breached its major support at Rs 73.

F&O pointers: The counter witnessed just 20 per cent rollover in open interest positions. Option trading indicates a neutral view on SAIL as both calls and puts witnessed unwinding of open interest positions.

Strategy: Traders could consider bear call spread strategy. This strategy is employed when one thinks that the price of the underlying asset will go down moderately in the near-term.

This can be initiated by selling SAIL 60 March call that closed at Rs 4 on Friday while simultaneously buying SAIL 65 call, which closed at 50 paise. Market lot is 4,000.

The maximum profit in this strategy is Rs 3.5 a contract (Rs 14,000). To attain that, the stock price needs to close below the strike price of the lower striking call (Rs 60) sold at expiration date where both options would expire worthless. Loss is limited to the extent of Rs 1.5/contract (i.e. Rs 6,000); maximum loss occurs when the underlying SAIL price equals or moves above Rs 65.

Follow-up: Last week, we advised traders to consider short on L&T or buy 1500 put. Both the strategies have turned profitable.

Note: Feedback or queries (on positions) may be sent to >blfuturesoptions@gmail.com by Sunday noon. Replies will be published on Monday.

Published on March 23, 2013
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