Technical Analysis

Bull call spread on Bharat Forge

KS BADRI NARAYANAN | Updated on January 17, 2018 Published on August 07, 2016

7BharatForgeC_col



Thanks to a strong rally on Friday, the short-term outlook has turned positive for Bharat Forge (₹814). Only a close below ₹728 will change the outlook to negative. However, the long-term outlook for Bharat Forge still remains negative. Only a close above ₹986 will alter the long-term view to positive. The stock finds immediate support at ₹768 and resistance ₹861.

F&O pointers: On Friday, futures contract shed over 4 lakh shares in open interest, as traders preferred to book profits rather than roll over their positions, despite a huge gain in underlying. Option trading indicates a strong support at ₹740 for Bharat Forge.

Strategy: Investors can consider a bull call spread on Bharat Forge. This can be initiated by buying ₹820-call and simultaneously selling ₹840-call, which closed with a premium of ₹29 and ₹20 respectively.

The maximum loss in this strategy would be the initial payout, which is ₹9/contract. As the market lot is 600 shares per contract, it works out to ₹5,400. Maximum loss will occur if the stock fails to sustain above ₹820 level at the time of expiry.

However, this strategy can yield a maximum profit of ₹11/contract (or ₹6,600). For that, Bharat Forge has to close at or above ₹840. Alternatively, traders can consider buying ₹840-call option with a stop-loss at ₹10. Traders can book profits if the premium hits ₹45. Traders should aware that this strategy will incur an initial outflow of ₹12,000.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on August 07, 2016
This article is closed for comments.
Please Email the Editor