Derivatives

Why bull-call spread on GAIL India may be a good strategy

KS Badri Narayanan | Updated on September 11, 2021

Open interest in this counter has more than doubled in the last 15 days

The stock of GAIL India (₹145.15) rules at a crucial level. We expect the short-term outlook to turn positive for the stock. A close above ₹153 will trigger a fresh rally towards ₹165 and even to ₹180. On other hand GAIL India faces support at ₹140 and ₹129.

F&O pointers: GAIL’s September futures has been accumulating steady open interest positions in the last 15 days despite the stock moving in a narrow range around ₹145. Open positions jumped from 1.94 lakh shares on August 24 to 4.24 lakh shares on September 9.

Strategy: Traders could consider a bull-call spread. This can be constructed by buying ₹145-call and simultaneously selling the ₹150-call, which closed with a premium of ₹5.60 and ₹3.65 respectively. As the market lot is 6,100 shares, this will cost investors ₹11,895 which will be the maximum loss. On other hand a profit of ₹18,605 is possible if GAIL India moves past ₹150. Traders could exit if the loss mounts to ₹9,500.

Alternatively, traders who wish to take a risk can buy GAIL India futures with a stop loss at ₹138 initially, which can be shifted to ₹145 if it opens on strong note on Monday. If the stock opens negatively, traders could stay away from this strategy. As the loss can happen in a short span of time, this strategy is for traders who can withstand wild swings and meet margin commitments.

Follow-up: Stop loss would have triggered for IEX as it jumped sharply contrary to our expectations.

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

Published on September 11, 2021

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