Derivatives

This F&O strategy on NTPC may pay well

KS Badri Narayanan | Updated on September 18, 2021

Liquidity in October series is expected to improve going forward

The stock of NTPC (₹123.75) is ruling at a crucial level. The stock needs a conclusive close above ₹125.50 to maintain the bullish momentum. If NTPC manages to close above ₹125.50, the stock has the potential to reach ₹136 and ₹148. The stock finds immediate support at ₹117 and a major one at ₹109. A close below the latter will alter the current bullish view on NTPC and a close below ₹98 will trigger a fresh fall. We expect the stock to move in a narrow range in the short-term, before making a clear trend. However, the overall undertone remains positive for NTPC.

F&O Pointers: NTPC futures shed open position in the last eight days despite the stock moving up from ₹114 to ₹124. NTPC September futures closed at ₹123.75, same as the underlying stock price. This signals that traders prefer to reduce positions on every rise. Option trading indicates that the NTPC stock could move in a range of ₹115-130.

Strategy: Traders could consider a calendar bull-call spread on NPTC. This can be initiated by selling ₹125-strike September call option and simultaneously buying the same strike of October contract. Liquidity in October series is expected to improve going forward. As the September ₹125-call closed the day at ₹2.35 and the October at ₹5.20, this strategy will cost investors ₹16,245 (market lot 5,700 shares), which would be the maximum loss one can suffer. The maximum loss will happen, if NTPC fails hold on to ₹125. On the other hand, a close above ₹127.85 will turn the position in-the-money. The profit will get enhanced if NTPC holds on to current level in this series and rises sharply from October 1, as the shorted September call will become worthless turning the whole premium as profit.

Hold the position until at least second week of October. Traders could exit the position if loss reaches ₹9,500.

Follow-up: Advise traders to book profits in Gail India strategy (both bull-call spread and long futures).

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

Published on September 18, 2021

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