Derivatives

Why you should go for a bull-call spread on Indian Hotels stock

KS Badri Narayanan | Updated on November 06, 2021

Stock to remain positive with minor intermittent corrections

The long- and short-term outlook for the stock of The Indian Hotels Company (IHCL) (₹215.45) has turned positive. The stock finds an immediate support at ₹194 and as long as it stays above ₹158, the long-term bullish outlook will remain unchanged. Immediate resistance appears to be at ₹224. We expect the stock to remain positive with minor intermittent corrections. If the current trend sustains, Indian Hotels has the potential to reach ₹245. Traders should keep it mind that being cyclical stock, Indian Hotels has been witnessing volatile trading pattern.

F&O pointers: Indian Hotels saw accumulation in open interest positions. From 3.27 lakh shares on October 5, open interests zoomed to 1.73 crore shares while share price moved between ₹185 and ₹235. IHCL November futures price at ₹213.10 is at a discount to the spot price of ₹215.45, signalling existence of short positions. Option trading indicates a range between ₹200-220.

Strategy: Traders can consider a bull-call spread on IHCL, using ₹215-strike and ₹220-strike calls. This can be done by selling the latter and simultaneously buying the former, which closed with a premium of ₹7.65 and ₹9.40 respectively. This strategy will result in an outgo of ₹1.75/contract or ₹6,825 (market lot: 3,900 shares) which will be the maximum loss that will happen if Indian Hotels closes at or below ₹215.

On the other hand, a profit of ₹12,675 is possible, if the stock closes at or above ₹220. Hold the position till expiry.

Alternatively, traders, who can afford to take a risk and have patience to withstand wild swings, can consider going long on Indian Hotels futures with a stop loss at ₹204. Stop-loss can be shifted to ₹216 if this level is decisively breached. Initial target will be at ₹224.

Follow-up: Hold AU Small Finance recommended last week and HAL (for one more week).

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

Published on November 06, 2021

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