Technical Analysis

Bull-call spread on Coal India

KS Badri Narayanan | Updated on September 02, 2018 Published on September 02, 2018

The stock of Coal India (₹286) rules at a crucial level. The stock finds strong support at ₹262 and key resistance at ₹308. A conclusive close above the latter can lift Coal India to ₹334, ₹363 and even to ₹400, if the bullish momentum sustains. On the other hand, a close below the support level can weaken the stock to ₹245. We expect the stock to maintain the positive run though, at its own speed.

F&O pointers: The Coal India September futures saw a moderate accumulation of open positions on Friday. However, in the last 10 days, open interest has climbed steeply from 13.04 lakh shares to 1.84 crore shares. Option trading indicates that Coal India could move in the ₹280-290 range.

Strategy: Traders can consider a bull-call spread on Coal India by buying ₹285-call and simultaneously selling the ₹300-call. They closed with a premium of ₹9.30 and ₹3.80, respectively. That means, traders need to pay ₹5.5 a contract (or ₹12,100), which would be the maximum loss. If Coal India fails to move up from the current levels, it will be a loss. The market lot for Coal India is 2,200 shares.

However, a maximum profit of ₹9.5/contract or ₹22,900 is possible if Coal India closes at or above ₹300.

We advice traders to hold the position till expiry. This strategy is for traders who can understand the risk and can hold the position amidst volatility.

Published on September 02, 2018
This article is closed for comments.
Please Email the Editor