Technical Analysis

Consider a calendar spread on Tata Motors

KS BADRI NARAYANAN | Updated on January 20, 2018 Published on June 26, 2016


Despite a huge fall of 8 per cent on Friday, the outlook for Tata Motors (₹449) remains positive. The short-term outlook will turn negative only on closing below ₹380. In that event, the stock can find crucial support at ₹345. It finds immediate resistance at ₹480 and a close above will reconfirm the positive outlook.

F&O pointers: Tata Motors futures added open interest in June and July futures, signalling value buying. The counter witnessed a rollover of about 18 per cent to July series. Option trading indicates that the stock is facing strong support at ₹400 and resistance at ₹460 and at ₹500 levels.

Strategy: Traders can consider a calendar spread on Tata Motors. This can be initiated by selling ₹400-call of June series while simultaneously buying the same strike call of July series. They closed with a premium of ₹51.35 and ₹60 respectively.

That means one has to pay ₹8.65/contract to build the position. In absolute terms, it works out to ₹12,975, as the market lot is 1,500 shares per contract. This will be the maximum loss one can suffer and that will happen if Tata Motors rises sharply in June and falls in July below ₹400.

But the profits are unlimited in this strategy, if Tata Motors struggles in the immediate time period and rises sharply in July. Selling option involves huge margin commitments. So this strategy is for traders who can withstand margin pressure. Hold the positions for at least three to four weeks.

Follow-up: Hold SAIL and Hindalco positions recommended last week and previous week. The strategy on the latter has turned positive while the former is in neutral position.

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Published on June 26, 2016
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