The stock of Aurobindo Pharma (₹691) is ruling at a crucial level. It finds support at ₹666 and a crucial one at ₹580. A close below the latter will alter the long-term positive outlook.
Immediate resistance appears at ₹765 and a close above ₹823 will re-confirm the long-term positive outlook. In the short term, we expect the stock to move in a narrow range between ₹650 and ₹750.
F&O pointers: December futures closed at a premium of about ₹2 with respect to the spot close. It added about 80,000 shares in open interest. Trading in options indicates that the stock can move in a ₹660-₹720 range.
Strategy: Traders can consider a bull call spread on Aurobindo Pharma. This can be initiated by selling ₹720-call and buying a ₹680 call. They closed with premiums of ₹6.45 and ₹23.20, respectively.
Traders will have to incur a cost of ₹11,725 (₹16.75/contract). This will be the total loss one can suffer, if Aurobindo Pharma closes at or below ₹680. Maximum profit that one can earn in this strategy is ₹16,275, if the stock manages to close at or above ₹720 at the time of expiry.
Traders can exit if the loss mounts to ₹7,500. Alternatively, traders with high risk appetite can consider going long on Aurobindo Pharma futures with a stop-loss at ₹680 for a trading target of ₹705.
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