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The long-term outlook remains positive for Tata Motors (₹578.8) and it finds immediate support at ₹522. A close below this can drag the stock towards the critical support at ₹445. On the other hand, if the stock manages to close above ₹592 with strong volumes, it can go on to record a new high above ₹612. Initial target will then be ₹680.
F&O pointers: Tata Motors futures witnessed a healthy rollover of about 21 per cent. Option trading indicates that the stock could witness a strong resistance at ₹600.
Strategy: With the Budget round the corner, we present a low-risk and high-return strategy — a call ratio back spread on Tata Motors. This strategy assumes that the stock will rally after the Budget.
The strategy can be executed by selling March ₹530 call while simultaneously buying two calls of ₹580. While the former closed with a premium of ₹60, the latter ended on Friday at ₹28.95.
That means that the total outgo for executing the strategy is ₹2.1 per contract. That could be the maximum loss (₹1,050) one could incur in this strategy. For that to happen, Tata Motors has to settle at or below ₹530.
The position will not yield any profit or loss if Tata Motors closes at around ₹610 at the time of expiry. The position will turn profitable if Tata Motors futures close above ₹610. Profit will be unlimited, if Tata Motors rallies sharply.
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