Derivatives

Bull-call spread on HUL

KS Badri Narayanan | Updated on August 28, 2021

Open interest saw a strong rollover from August to September series

Both long-term and short-term outlooks remain positive for Hindustan Unilever Limited (HUL) (₹2,677.95). The stock finds an immediate support at ₹2,617 and the next one at ₹2,546.If HUL maintains the current bullish trend, it can reach ₹3,150 level. We expect the stock to sustain the bullish trend with a bout of minor corrections.

F&O pointers: Stock saw a healthy rollover of almost 97 per cent from August to September series in open interest. HUL September futures commands a premium of almost ₹4 as it closed at ₹2,681.90 against the spot price close ₹2,677.95. In the past few days, the stock has been climbing steadily accompanied by a healthy accumulation of open interest, indicating long rollovers. Option trading indicates that HUL can move in a range of ₹2,600-2,700 in the immediate term.

Strategy: We advise traders to consider a bull-call spread, which can be constructed by selling ₹2,700-strike call and simultaneously buying the ₹2,640-call. These options closed with a premium of ₹58.90 and ₹89.85 respectively.

This strategy will cost traders ₹30.95 a contract or ₹9,285 (market lot: 300 shares), which will be the maximum loss one can suffer. On the other hand, a profit of ₹29.05/lot or ₹8,715. Despite the risk-reward ratio not being favourable, we advise this strategy because of high probability of success at this juncture. Traders can exit if loss hits ₹7,000.

Alternatively, traders with deep pockets to meet margin commitments and willing to take a risk, can go long on HUL futures. While stop-loss can be placed at ₹2,656 for an initial target of ₹2,715, stop loss can be shifted to ₹2,669, if HUL opens on positive note.

Follow-up: Short strangle on Havells would have closed with a maximum profit.

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

Published on August 28, 2021

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