Derivatives

How to earn ₹13,000-profit with bull-call spread on Biocon

KS Badri Narayanan, | Updated on April 17, 2021

Strong surge seen on open positions in the last few days

The stock of Biocon (₹412.8) is at a crucial juncture, though the long-term outlook remains positive. The stock finds an immediate resistance at ₹420 and a close above will lift Biocon to ₹451. A conclusive close above ₹474 will trigger a fresh rally in the stock and that could lift it to a new peak around ₹536.

On the other hand, Biocon finds an immediate support at ₹389 and a close below that can drag the stock towards ₹367. A conclusive close below ₹325 will change the outlook to negative. We expect the stock to move positively. Traders should also remember that the pharma major will declare their quarterly/annual results on April 28 and hence the stock is likely to move in a range with positive bias.

F&O pointers: Biocon April futures closed at ₹414.45, a premium with respect to the spot price of ₹412.82. The counter has witnessed a sharp surge in open positions in the last few days. The share price, which was under pressure, recovered on Friday. Option trading indicates a possible movement of ₹400-430 for the stock.

Strategy: Traders could consider a bull-call spread on Biocon. This can be initiated by selling 420-strike call and simultaneously buying the 410-strike call. These options closed with a premium of ₹10.40 and ₹14.75 respectively. So, traders will have to spend ₹4.35/contract (or ₹10,005; market lot is 2,300 shares) and that will be the maximum loss if Biocon sustains at or below ₹420 on expiry.

On the other hand, a profit of ₹12,995 is possible if the stock closes at or above ₹420 before expiry. We advise traders to hold the position till the expiry day or exit if the profit is achieved earlier.

Alternatively, traders with high risk appetite could also consider going long on Biocon futures. While initial stop loss can be placed at ₹403, target can be ₹420.

Follow-up: Hold Sun Pharma position, as the stock is moving on expected lines till the target is achieved.

Published on April 17, 2021

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