Derivatives

Why going long on Maruti Suzuki futures is a good bet

KS Badri Narayanan | Updated on May 02, 2021

As volatility is expected, risk averse traders can stay away from this trade

The stock of Maruti Suzuki is ruling at a crucial level. The stock finds an immediate support at ₹6,311 and the crucial one at ₹6,247. A close below the latter will change the medium term outlook to negative for Maruti Suzuki, which can drive it down to ₹5,888. The stock finds immediate resistance at ₹6,510 and only a close above ₹6,840 will reconfirm the long-term bullish trend. In that case, Maruti can reach ₹7,740. We expect the stock to be more volatile.

F&O pointers: Maruti Suzuki May futures on Friday closed at ₹6,486.90 as against the spot price of ₹6,455.65, a premium of ₹30. The counter too witnessed a steady accumulation of open positions in the last few days. Option trading indicates a range of ₹6,000-7,000 for Maruti Suzuki.

Strategy: Traders with high-risk appetite can consider going long on Maruti futures with a stop loss at ₹6,311. As this involves high margin commitments and can quickly cause heavy damage financially, this strategy is for traders who can understand risks. So, traders should closely monitor the position continuously. While the initial target is ₹6,510, high-risk traders can even aim for ₹6,565. Stop loss can be shifted to ₹6,410 if the stock opens on positive note and gradually trails the price movement.

Alternatively, conservative traders could also consider a bull-call spread on Maruti Suzuki by buying 6,400-call and simultaneously selling the 6,500-call, which closed with premium of ₹272.30 and ₹222.65 respectively. As the market lot is 100 shares per contract, this strategy will cost traders ₹4,965 which will be the maximum loss. This will happen if the stock ends at or below ₹6,400. A profit of ₹5,035 is also possible if Maruti closes at or above ₹6,500. We advise traders to hold the option strategy till expiry.

Follow-up: We had advised a long futures call on SBI Life Insurance; profit target of ₹942 was hit. We had also advised a calendar spread on SBI Life. Traders can continue to hold May month 950-call.

Published on May 01, 2021

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