Derivatives

Why a calendar bull call spread on Infy can be profitable

KS Badri Narayanan | Updated on September 25, 2021

The stock may stay positive ahead of Q2 result on October 13

The long-term outlook remains positive on Infosys (₹1,763.85). The stock finds an immediate support at ₹1,687 and the major one at ₹1,541. As long as the stock rules above the latter, the short-term outlook will remain positive. A close below ₹1,316 will alter the current bullish view on Infosys. On the other hand, if the current trend sustains, Infosys can cross ₹1,900. As Infosys will declare its Q2 results on October 13, 2021, the stock may remain in a range ahead of the result.

F&O pointers: Infosys September and October futures closed at ₹1,760.60 and ₹1,753.25 respectively on Friday, at a discount with respect to the spot close of ₹1,763.85. This signals traders preferred to book profits and were unwilling to carry on even as the stock price rose sharply. Rollover of 25 per cent to October seems healthy but indicates some short positions too. Option trading indicates a range of ₹1,720-1,800.

Strategy: We advise traders to consider a calendar bull-call spread on Infosys. This can be done by selling the ₹1,760-call of September series and simultaneously buying the ₹1,760-call of October series. They closed with a premium of ₹20.95 and ₹69.35 respectively. This will cost traders ₹48.40/contract i.e., ₹29,040, which will be the maximum loss one can suffer. Maximum loss will occur if Infosys stays at or below ₹1,760 at expiry.

On the other hand, profit potential is high. The price of ₹1,808.40 would be the break even point for the strategy. Hold the position for at least three weeks; or exit if the loss mounts to ₹12,500.

Follow-up: Last week, we had advised similar strategy on NTPC. Traders could exit the September (short) call and hold the October (long) call.

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

Published on September 25, 2021

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