Technical Analysis

Future Perfect: Bull call spread on M&M Fin

KS BADRI NARAYANAN | Updated on January 18, 2018 Published on July 31, 2016


The outlook for Mahindra & Mahindra Financial Services (₹331) remains positive.

The stock finds immediate support at ₹309. As long as the stock holds above ₹245, the long-term bullish outlook will remain intact. It appears that the stock is heading for ₹434 level, if the current bullish trend sustains.

F&O pointers: On Friday, futures contract shed 7.45 lakh shares in open interest. This indicates that traders preferred to book profits rather than roll over their positions. Option trading indicates a trading range of ₹310 to ₹340.

Strategy: Investors can consider a bull call spread on M&M Financial. This can be initiated by selling ₹350-call and simultaneously buying the ₹330-call. They closed with a premium of ₹6.6 and ₹13.95 respectively.

The maximum loss in this strategy would be the initial payout, which is ₹7.35/contract. Maximum loss occurs if the stock fails to sustain above ₹330 level at the time of expiry.

However, a profit of ₹12.65/contract is possible, if M&M Financial manages to close at or above ₹350.

Traders could consider exiting the positions if the loss mounts to ₹5/contract.

Alternatively, traders with high-risk appetite can consider going long on M&M Financial futures with a stop-loss at ₹309. Market lot is 2,500.

Follow-up: Hold SBI ₹215 August call.

Published on July 31, 2016
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