Derivatives

Strategy on L&T Finance Holdings

KS Badri Narayanan | Updated on January 16, 2021

Traders can exit the position either at a profit of ₹15,000 or at a loss of ₹7,500

The stock of L&T Finance Holdings (₹105.25) is ruling at a crucial level. A close above ₹112 will trigger a fresh rally and re-emphasise the short-term bullish outlook. A close above ₹112 has the potential to lift the stock to ₹125. On the other hand, L&T Finance Holdings finds an immediate support at ₹98 and the next one at ₹89 and crucial at ₹79. A close below the latter will negate the positive outlook. As the company came out with quarterly results on Friday, post market hours, the stock may see volatile trading pattern with a negative bias.

F&O pointers: L&T Finance Holdings January futures closed in discount at ₹103.55 against the spot close of ₹105.25, signalling creation of short positions. The counter added almost 10 per cent in positions, ahead of result announcements. Option trading indicates a movement of ₹100-110 for the stock.

Strategy: We advice traders to consider a bear-call spread on L&T Finance Holdings, which can be initiated by buying ₹105-strike call (January expiry) and simultaneously selling the ₹100-strike call (January expiry). These options closed with a premium of ₹5.30 and ₹7.80. That means, this strategy will entain an inflow of ₹2.50 per contract.

As the market lot is 8,300 shares, traders will receive ₹20,750, which will be the maximum profit one can earn in this strategy. The maximum profit will happen if L&T Finance Holdings slips below ₹100. But, a maximum loss of ₹2.50 per contract is also possible should the stock rises above ₹105. Traders can exit the position either at a profit of ₹15,000 or at a loss of ₹7,500. If the stock opens weak, traders could adopt the strategy using ₹100-call and ₹95-strike options.

Alternatively, traders could consider shorting L&T Finance futures with a stop-loss at ₹107.20 for a target of ₹95.

Follow-up: ITC hit the profit targets (for both option as well as future strategies).

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Published on January 16, 2021
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