Technical Analysis

Do a call spread on Tata Steel

KS Badri Narayanan | Updated on March 11, 2018 Published on March 11, 2018

Despite the recent fall, the long-term outlook for Tata Steel (₹606.75) remains positive. The stock has a crucial support at ₹568 and as long as it stays above this level, the outlook will remain bullish. The stock faces an immediate resistance at ₹651 and a major one at ₹692. A close above the latter will trigger fresh rally in the stock. However, in the short term, Tata Steel could remain volatile with a downward bias. A close below ₹568 will change the outlook negative for the stock.

F&O pointers: Tata Steel March futures added fresh positions on Friday even as the stock corrected almost 4 per cent. The spot and futures price almost remains the same, signalling that the accumulation of open positions is on the short side. Option trading indicates a range of ₹600-700 for the stock, where the concentration of open positions (on the put and call) is seen.

Strategy: Traders can consider a bull-call spread on Tata Steel. This can be initiated by selling the current month ₹620-call and simultaneously buying the ₹640-call. They closed with a premium of ₹13.75 and ₹7.50 respectively. That means, it will result in an outgo of ₹6.25/contract, which could be the maximum loss one can suffer. If the stock closes at or below ₹620 at the time of expiry, it will result in loss.

On the other hand, a profit potential of ₹13.75 per contract is possible, if Tata Steel closes at or above ₹640. We advice traders to hold to the position till the expiry.

Published on March 11, 2018
This article is closed for comments.
Please Email the Editor