Derivatives

Go for bull-call spread on Tech Mahindra stock

K. S. Badri Narayanan | Updated on: Dec 04, 2021
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The outlook for the stock of Tech Mahindra (₹1,593.3) is positive despite a sharp fall on Friday. The stock finds an immediate support at ₹1,373 and the crucial one at ₹1,189. On the other hand, if the current trend sustains, the stock has the potential to reach ₹1,752.

We expect Tech Mahindra to witness volatile trading in the short-term, but the structural bullish technical pattern remains intact. The stock may resume its bullish journey once the volatility settles down.

F&O pointers: The counter saw accumulation of open interests in the last few days despite Tech Mahindra moving in a ₹1,480-₹1,640 band.

The recent accumulation has been on the back of rising share price, signalling addition of open interests. Trading in Tech Mahindra options indicate that the stock could move between ₹1,500 and ₹1,700.

Strategy: We advise traders to consider a bull-call spread on Tech Mahindra. This can be done by using ₹1600-strike and ₹1620-strke calls, which closed with a premium of ₹52.15 and ₹43.60 respectively. Traders have to incur an initial outflow of ₹5,130, which would be the maximum loss one can suffer in this strategy.

For a maximum loss to happen, Tech Mahindra has to close at or below ₹1,600. On the other hand, a profit of ₹6,870 is possible if the stock closes at or above ₹1,620. Market lot is 600 shares.

Traders with high risk taking ability can buy a ₹1620-strike call, which will cost them ₹25,920. Traders could exit the position at a loss of ₹10,000 or at a profit of ₹18,000.

Follow-up: As advised, we can review Nifty bull call spread position later. The Nifty50 index has been moving on the expected line.

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

Published on December 04, 2021

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