Technical Analysis

Stock strategy: Consider calendar spread on RIL

K. S. Badri Narayanan | Updated on October 26, 2013 Published on October 26, 2013


The stock of Reliance Industries has been moving in the Rs 760-960 range in the last year. The stock finds immediate support at Rs 844 and resistance at Rs 925. If the counter continues to attract volumes, Reliance will lead the party further. On the other hand, if there is a decline in trading interest the stock will head towards its support level.

F&O pointers: The Reliance Industries futures witnessed a healthy rollover of 20 per cent to the November series. The premium on the November contract is also relatively high. This indicates that traders are willing to carry over their positions. Option trading also indicates Rs 900 as a crucial level, as open interest (OI) is concentrated at that strike for both puts and calls. Even in the November series, OI is concentrated at 900.

Strategy: Traders can consider a calendar spread on Reliance Industries. This can be initiated by selling 600 October call and simultaneously buying the same strike in November series, which closed with a premium of Rs 5.85 and Rs 25.7. This will result in a net outgo of about Rs 20.

Scenario 1 (Slightly bad): If Reliance either declines sharply or remains around Rs 900, then the options will expire worthless. Thus, the investor loses his initial investment of Rs 20, at maximum (Rs 25.7 - Rs 5.85).

Scenario 2 (Slightly better): If Reliance Industries rises (assume it rises to Rs 950) then the strategy will result in a profit of at least Rs 30 (the difference between the spot and the strike prices minus the initial outgo).

Scenario 3 (The best): If the Reliance price stays flat or falls till the expiry of October contracts and moves sharply higher in November, then the position will result in higher profits, as both the short and long options will yield maximum profit potential.

Scenario 4 (The worst): If Reliance Industries rises sharply in October but falls in November. This will hurt both the positions. However, in this scenario, traders will have opportunities to book profits in October itself).

(Note: Feedback or queries (on positions) may be sent to > by Sunday noon. Replies will be published on Monday.)

Published on October 26, 2013
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