Technical Analysis

Calendar bull spread on L&T

KS Badri Narayanan | Updated on November 25, 2018 Published on November 25, 2018

Thanks to recent gains in its stock, the outlook for Larsen & Toubro has turned positive. The stock now finds an immediate support at ₹1,312, and only a decisive fall below ₹1,225 will alter the current bullish outlook. If the current trend sustains, the stock could climb to ₹1,625 and then to ₹1,800. We expect the stock to maintain the positive momentum.

F&O Pointers: L&T witnessed a rollover of just 5 per cent to December series, signalling that investors are still cautious. However, option trading signals a positive bias, as puts added open positions while calls saw unwinding of positions.

Strategy: Traders could consider a calendar bull-call spread on L&T, using ₹1,420 strike. Traders should sell the current month ₹1,420-call and simultaneously buy ₹1,420-December call. These options closed with a premium of ₹8 and ₹35.40, which means one has to shell out ₹10,275 as the market lot is 375 shares per contract. The maximum loss one can suffer in this strategy is the premium paid (₹10,275) and this will happen if L&T closes below ₹1,420 at the time of December expiry.

However, profit is unlimited if the stock remains weak in the current series and rises sharply next month. Exit the position if loss mounts to ₹7,200 or at a profit of ₹12,000. Hold the position for at least three weeks. This strategy is for traders who have a risk-taking ability.

Follow-up: Though last week’s position on Bharti Airtel turned negative, we advise traders to hold till expiry.

Published on November 25, 2018
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