Derivatives

Consider a calendar bull-call spread on IRCTC

K. S. Badri Narayanan | Updated on: Jan 15, 2022
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Maximum risk at ₹23.55 per contract with high profit potential

The outlook remains positive for the stock of IRCTC (Indian Railway Catering & Tourism Corporation) (₹902.7), which finds an immediate resistance at ₹927 and the major one at ₹981. A close above the latter will trigger a fresh rally that can take the stock towards ₹1,125.

On the other hand, immediate support appears at ₹856 and a close below ₹718 will change the current positive outlook on the stock.

F&O Pointers: Strong build-up in open interest can be seen as it climbed to 1.02 crore shares (Jan 13) from 7.49 lakh shares (Dec 15), signalling that the traders are willing to carry forward their positions expecting further gains. Option trading indicates that IRCTC could move in the ₹800 – 1,000 range, where respective put and call options are seeing concentration of open interests.

Strategy: We advise traders to consider a calendar bull-call spread on IRCTC. This can be done by selling the current month ₹900-call (premium price ₹34.95) and simultaneously buying the next month call with same strike (premium at ₹58.50). That means, this will cost traders ₹23.55/contract or ₹20,606.25 (market lot 875 shares).

The maximum loss would be the premium paid (i.e., ₹20,606.25), which will happen if IRCTC fails to sustain above ₹900. We advise the traders hold the position until the loss mounts to ₹10,500. Profit potentials are unlimited if the stock slips or hold at current levels in the January series and rises sharply in February.

Follow up: Though ITC (underlying stock) rose marginally last week, the ₹220-call option did not move much. We advise traders hold the position as mentioned last week.

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

Published on January 15, 2022

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