Go for bull-call spread on Bharti Airtel stock

The stock of Bharti Airtel (₹683.80) is ruling at a crucial level. After hitting a 52-week high at ₹781.80, the stock has been on a corrective phase though overall undertone remains bullish. The stock finds an immediate support at ₹649 and a major one at ₹538. A close below the latter will alter the current bullish outlook on Bharti Airtel. On the other hand, the stock finds an immediate resistance at ₹738 and a close above that can trigger fresh rally to ₹900-995 level.

F&O outlook: Bharti Airtel December futures closed with a healthy premium of almost four points at ₹687.35, as against the spot price of ₹683.80. Rollover of open positions from December to January series was strong at 96 per cent. This indicates traders not only rolled over their positions but also add fresh ones during the series. Option trading indicates a movement in the range of ₹720 - ₹650.

Strategy: We advise a bull-call spread on Bharti Airtel. This can be initiated by selling the ₹700-call option and simultaneously buying the ₹680-call option. As these options closed with a premium of ₹13.55 and ₹22.50, this strategy will cost traders ₹8,502.50 (lot 950 shares). The maximum loss would be the net premium paid (i.e., ₹8,502.50), which will happen if the stock fails to close above ₹680 on expiry. A profit of ₹10,497.50 is possible if it closes at or above ₹700 before expiry. We advise traders to hold the position till expiry (or exit if profit is achieved earlier).

Investors, who are willing to play for long term, can consider buying Bharti Airtel futures by keeping the stop loss at ₹649 initially which can be shifted to ₹675 if the stock opens above ₹687. When it crosses over ₹738, put trailing stop-loss at ₹730. Investors can aim for an initial target of ₹780.

The key risks in the strategy are: 1) Wild swing can cause a huge loss and the position demand higher margin; 2) Carrying over the positions will increase the cost of transactions. So, investors who wish to follow this strategy need to keep these in mind.

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