Derivatives

Diagonal bull-call spread strategy for IDFC First Bank stock

KS Badri Narayanan | Updated on May 23, 2021

Profits rise if the stock remains static for the next four days and moves sharply thereafter

Shares of IDFC First Bank (₹57.25) are ruling at a crucial level. The stock finds an immediate resistance at ₹59.50 and a conclusive close above this level will lift the stock to ₹64 initially and then to ₹68. On the other hand, IDFC First Bank finds immediate support at ₹53.50 and a crucial one at ₹45.50. A close below the latter will alter the current short-term bullish view on the stock. A close above ₹71 will change the long-term outlook also to bullish for IDFC First Bank.

F&O Pointers: IDFC Bank May and June futures closed at ₹57.55 and ₹57.50 respectively, just a shade above the spot close of ₹57.25. Rollover to June contract stood at 30 per cent, which is slightly higher when compared with the previous occasions. Option trading of May contracts indicates a range of ₹55-60 for the stock.

Strategy: Traders could consider a diagonal calendar call spread on IDFC First Bank. This can be initiated by selling May 58-strike call and simultaneously buying the 60-strike call of June. These contracts closed with a premium of ₹1.20 and ₹2.70 respectively. As the market lot is 9,500 shares per contract, this strategy will cost traders ₹14,250, which will be the maximum loss.

For maximum loss to happen, IDFC First Bank has to stay below ₹60. On the other hand, profit potential is high if IDFC First Bank stays at current level in this month expiry and starts moving up sharply in next month.

We advise traders to exit the position if the loss mounts to ₹10,000 or at a profit of ₹14,000.

Follow-up: Last week we advised a short strangle on Lupin. The position is in the money. Traders can hold it for next couple of days to take maximum profit.

Published on May 23, 2021

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