Technical Analysis

Future Perfect: Consider bull-call spread on LIC Housing Finance

KS Badri Narayanan | Updated on September 08, 2019 Published on September 08, 2019

The long-term outlook for LIC Housing Finance appears negative, though the stock may show some resilience in the short and medium term. It rules at a crucial level of ₹398. If the stock sustains above ₹398, it can bounce back towards ₹476. A close above ₹476 will alter the current negative outlook. The stock finds an immediate resistance at ₹425. But a close below ₹398 can drag LIC Housing Finance towards ₹345.

F&O pointers: The LIC Housing Finance futures added a little over two lakh shares on Friday along with a rise in share price. The counter witnessed higher trading interest last Thursday, signalling value buying. Option trading indicates a movement in a range of ₹380-420.

 

 

Strategy: Traders can consider a bull-call spread on LIC Housing Finance that can be initiated by selling ₹410-call option and, simultaneously, buying the ₹400-call option. The options closed with a premium of ₹14.20 and ₹9.75 respectively. That means, to adopt this strategy, one has to shell out ₹4.45/contract.

As the market lot is 4,400 shares/per contract, it works out to ₹19,580. This would be the maximum loss one can suffer, which can happen if LIC Housing closes at or below ₹400 at the time of expiry. But a profit of ₹24,420 is possible, if LIC Housing Finance closes above ₹410.

We advice traders to hold on to the position for at least two weeks.

Follow-up: Bank of India moved on expected lines, traders can book profits as recommended.

Published on September 08, 2019
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