Technical Analysis

Bear-call spread on Tata Motors

KS Badri Narayanan | Updated on July 27, 2014 Published on July 27, 2014

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While the long-term outlook remains positive for Tata Motors, the stock may face some pressure in the short term. Tata Motors finds immediate support at ₹435 and resistance at ₹479. A close below ₹435 could drag the stock down to ₹400.

F&O pointers: The counter witnessed a rollover of 19 per cent to August series. The premium for the August series narrowed considerably, signalling profit booking in long positions. Option trading indicates a range of ₹470-500 for the stock.

Strategy: Traders may consider a bear-call spread on Tata Motors. This can be initiated by selling the Tata Motors ₹460 August call and buying the ₹500 call, which closed at ₹17.95 and ₹5.6 respectively.

The maximum profit that can be made in this strategy is the net premium collected, which works out to ₹12,350 (market lot is 1,000 shares). For that to happen, Tata Motors should close below ₹460 at the time of expiry.

However, the strategy can also incur a maximum loss of ₹27,650, if the stock closes at or above ₹500. Traders with a high-risk appetite can consider this strategy and exit if the loss mounts to ₹6,500.

Published on July 27, 2014
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