Technical Analysis

Consider calendar spread on SBI

KS BADRI NARAYANAN | Updated on January 17, 2018 Published on July 24, 2016

VISAKHAPATNAM, ANDHRA PRADESH,19-09-2013:Samaikhyandhra activists forced the closure of the SBI Main Branch in Visakhapatnam on September 19, 2013. Photo:CV.Subrahmanyam   -  The Hindu

BL25SBI1

The medium-term outlook for State Bank of India (₹223.4) has turned positive. A conclusive close above ₹227 will reconfirm the positive momentum. The stock could then rise to ₹252.

On the other hand, SBI finds immediate support at ₹197 and a close below that level will pull SBI to ₹170.

F&O pointers: The SBI futures witnessed a rollover of 17 per cent to August month series. This is quite healthy, compared to the previous three months. Option trading indicates that the stock may find it difficult to move past ₹230 level.

Strategy: Traders can consider long calendar spread on SBI. This can be initiated by simultaneously selling SBI July ₹215-call and buying the SBI August ₹215-call. These options closed at a premium of ₹9.5 and ₹14.4 respectively. This strategy will cost traders ₹14,700, also the maximum loss.

This will happen if SBI fails to sustain ₹215 level till the expiry of August contracts or rises immediately and falls in August. Profit can, however, be unlimited if the stock swings aggressively upwards, particularly after the expiry of current series.

Trades can consider exiting the position if the loss mounts to ₹7,500.

Published on July 24, 2016
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