Derivatives

Why a bull-call spread can work on Coal India

KS Badri Narayanan | Updated on June 19, 2021

This can be initiated by selling the 150-call of June series

The short-term outlook remains positive for Coal India (₹146.4) while the long-term outlook will change to positive only on a conclusive close above ₹267. Coal India finds an immediate support at ₹132 and the crucial one at ₹125. A close below the latter will alter the short-term positive outlook. On the other hand, the stock finds an immediate resistance at ₹155 and a close above that will change medium term outlook positive and will lift the stock to ₹179.

F&O Pointers: Coal India futures saw a healthy rollover of over 22 per cent to July series. The Coal India June and July futures closed at ₹146.65 and ₹147.45, as against the spot price of ₹146.4. Despite the correction in the last few days, July futures saw accumulation of open interests. Option trading indicates a trading range of ₹150-142.50.

Strategy: We advise traders to consider a calendar bull-call spread on Coal India. This can be initiated by selling the 150-call of June series and simultaneously buying the 150-call of July series. These options closed with a premium of ₹1.4 and ₹6.65 respectively. That means, traders need to shell out ₹22,050 to construct the strategy. The market lot of Coal India is 4,200 shares.

The total loss could be the total premium paid i.e. ₹22,050, which will happen if Coal India fails to cross ₹150. However, profit potentials are very high if Coal India slips or stays at current levels in this series and rises sharply in July. Hold the position for at least three weeks or exit earlier if loss mounts to ₹9,500.

Follow-up: Hold short-strangle on SAIL for one more week for maximum benefit.

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

Published on June 19, 2021

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