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The stock of Tata Motors DVR (₹295) looks promising from a long-term perspective. The stock now faces a key resistance at ₹304 and a close above this level will trigger a fresh rally in the stock, which could take it higher to ₹ 326 or even to ₹356 levels.
F&O pointers: The Tata Motor DVR futures witnessed just 6 per cent in rollover to December series. Options are less active in December series. Current option series indicates support at ₹290.
Strategy: Traders can consider a bull-call spread on Tata Motors DVR using December contracts. This trading strategy is best suited for traders who wish to take only a limited risk and expect the stock to move up in the near term.
The bull-call spared can be applied by buying ₹310-call and simultaneously selling ₹300-call of December contracts. They closed with a premium of ₹7.95 and ₹11.05 per contract respectively. This strategy involves an initial outflow of ₹3.1 per contract or ₹6,510, which could be the maximum loss one can incur. Market lot is 2,100 shares a contract.
A maximum profit of ₹14,490 (₹6.9) is possible if the stock closes at or above ₹310 at the time of expiry. The strategy can incur loss if the stock closes at or below ₹300 at the time of expiry. We advice traders to hold the position till expiry or until the loss mounts to ₹2,500.
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