Derivatives

Why going long on SBI Life May futures is a good bet

KS Badri Narayanan | Updated on April 24, 2021

Option trading indicates a range of ₹900-950 for the stock movement

SBI Life Insurance Company (₹922.8) is ruling at a crucial level. The stock finds an immediate support at ₹897 and a close below it will change the short-term outlook bearish. In that event, SBI Life can slip to ₹858.

On the other hand, if the stock is able to sustain the current strength, and moves up, it faces an immediate resistance at ₹955 and a close above this level will trigger a fresh rally that can lift the stock to ₹1,180.

F&O Pointers: The counter has witnessed just 8 per cent rollover to next month (May) series. SBI Life April contracts closed at ₹923.30 and May contract at ₹927.35 as against the spot close of ₹922.85. The premium indicates rollover of long positions. Option trading indicates a range of ₹900-950 for the stock movement.

Strategy: We advise traders to consider going long on SBI Life Insurance May futures. This strategy is strictly for traders who understand risk and have enough money to meet margin commitments. Risk-averse traders can stay away from this strategy.

While stop-loss can be placed at ₹896 initially, this can be shifted to ₹922 if the stock opens on a positive note for a target of ₹942 and ₹955. This strategy requires huge margin commitments.

Alternatively, traders could consider a bull-call calendar spread. This can be initiated by selling the ₹950-strike call option of the current month and simultaneously buying the next month same strike call option. These options closed with a premium of ₹4.50 and ₹25.50 respectively. As the market lot is 750 shares per contract, this strategy will cost investors ₹15,750 or ₹21/contract.

While the maximum loss is the premium paid, which is ₹15,750, profit potentials are very high and that will happen if the stock falls in the next four days and rises sharply in May. On the other hand, loss will happen if SBI Life remains below ₹950. We advise traders to hold the position for at least three weeks.

Follow-up: Stop loss would have hit for last week’s strategy on Biocon.

Published on April 24, 2021

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