Derivatives

F&O Strategy: Why go for bear-put spread on BPCL

K. S. Badri Narayanan | Updated on: Jun 04, 2022

Option trading indicates BPCL stock can move in the ₹300-350 range

The short-term trend remains bearish for the stock of BPCL (₹328.15). The stock finds immediate resistance at ₹365 and if it manages to breach that level, it can reach ₹402. On the other hand, the stock finds immediate support at ₹319, and the next one at ₹293. The scrip finds a major support at ₹265. We expect the stock to witness downtrend in the near term.

F&O Pointers: Open interest of BPCL June futures was hovering around 1.60-1.70 crore shares as the stock moved between ₹335-325 in the last few days. Option trading indicates that BPCL can move in the ₹300-350 range.

Strategy: We advise traders to consider a bear-put strategy on BPCL options. This can be constructed by buying 330-put option and simultaneously selling the 320-strike put. As these options closed with a premium of ₹10.80 and ₹6.85 respectively, this strategy will cost ₹3.95 or ₹7,110 (market lot: 1,800 shares) per lot. The maximum loss will be the net premium paid (₹7,110), and that will happen if BPCL closes above ₹330 on expiry.

On the other hand, a profit of ₹10,890 is possible if BPCL slides below ₹320. We advise traders to hold the position for at least two weeks and review later.

Alternatively, traders with higher risk appetite can consider buying 325-strike put that closed with a premium of ₹8.65. Traders can exit the position if the premium rises to ₹13.50 or falls to ₹5.

Follow-up: We had recommended going long on TVS Motor futures for a target of ₹741 that was achieved on Monday itself. Those who follow the alternative recommendation for longer duration can continue to hold with mentioned stop losses.

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

Published on June 04, 2022
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