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
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.