The short-term outlook turned positive for Tata Power (₹232.40), though only a close above ₹259 will change the long-term view bullish. The stock finds immediate resistance at ₹242. On the other hand, the stock faces immediate support at ₹220 and the major one at ₹201. A close below the latter will change the short-term outlook too negative. We expect the stock to sustain the current momentum.
F&O pointers: Tata Power August futures closed at ₹233.40 against the spot price of ₹232.40. Even as the stock price climbed in the last few days, Tata Power August futures shed open interests in the last two days, as some traders preferred to book profits. However, the contract still commands a healthy open interest position of over 8.68 crore shares. Option chain indicates that the stock can move in a range of ₹230-250.
Strategy: We advise traders to consider a bull-call spread on Tata Power, which can be constructed by selling 240-strike call and simultaneously buying 235-strike call. These options closed with a premium of ₹3.90 and ₹5.70, which means this strategy will cost ₹1.80/lot to traders. The maximum loss is the premium paid — ₹1.80/lot or ₹6,075 and that will happen if the stock closes below ₹235 on expiry.
On the other hand, a profit of ₹10,800 is possible, if Tata Power closes at or above ₹240 at the time of expiry. Since the settlement is in just a few days (August 25), the position will get hurt due to time decay. We advise traders to hold the position till expiry.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading.