Derivatives

Go for bull-call spread on LIC Housing Finance

KS Badri Narayanan | Updated on July 31, 2021

Bet on possible pull-back rally

The stock of LIC Housing Finance, which closed at ₹410.45 on Friday, finds an immediate support at ₹395 and a crucial one at ₹377. A close below the latter will even alter the medium-term bullish outlook for LIC Housing Finance. On the other hand, it finds an immediate resistance at ₹432 and a conclusive close above this level, will turn the short-term outlook positive. In that case, LIC Housing Finance has potential to reach ₹471. Nevertheless, we expect the stock to move in a range in the short term with a positive bias before taking a clear direction.

F&O pointers: LIC Housing Finance saw a healthy roll-over of 91.5 per cent to August series. Over the last week, the August futures added 1.25 crore shares. But, after the Q1 results on Thursday, some short build-up was seen on the counter. Trading in options suggests that LIC Housing Finance will move between ₹400 and ₹450.

Strategy: We advise traders to consider a bull-call spread, expecting a pull back. Strategy can be initiated by selling ₹420-call and simultaneously buying ₹410-call. These options closed at a premium of ₹11.50 and ₹15.95 respectively. As the market lot is 2,000 shares, this would cost investors ₹4.45/contract or ₹8,900, which will be the maximum loss one can suffer and will happen if LIC Finance rules below ₹410.

On the other hand, a profit of ₹5.55/contract or ₹11,100 is possible if LIC Housing Finance moves above ₹420. We advise traders to hold the position till expiry date. However, in case the stock moves on expected lines and profit emerges, traders can exit.

Follow-up: Hold options of Nippon Life India AMC, as the stock is moving on expected lines.

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

Published on July 31, 2021

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