Technical Analysis

L&T: Build a long put spread

KS Badri Narayanan | Updated on March 19, 2018

The long-term positive outlook remain intact for Larsen & Toubro (₹1,275), as long as it stays above ₹1,057. The stock finds an immediate resistance at ₹1,330; a conclusive close above that will trigger a fresh rally in the stock. In that event, the stock could scale to ₹1,525 levels. L&T faces an immediate support at ₹1,249 and a strong one at ₹1,140.

F&O pointers: L&T March futures added 5.91 lakh shares or 4.7 per cent on Friday, despite fall in the stock price. However, from March 8-15, open interests were declining quite steadily, signalling traders’ unwillingness to carry over their positions. Option trading indicates concentration of open interests in ₹1,340-call, signalling that the stock may face resistance at around ₹1,340.

 

 

 

 

Strategy: Traders can consider a long put calendar spread strategy on L&T. This can be initiated by selling ₹1,280-put of March and, simultaneously, buying ₹1,280-put option of April. They closed with a premium of ₹22.95 and ₹31.55 respectively.

This strategy will entail outflow of ₹8.65/contract or (₹6,450), which will be the maximum loss one can incur. This will happen if L&T share price closed at or above ₹1,280 at the time of expiry of April series.

On the other hand, profit potentials are very high. For that to happen, L&T has to move higher in the current series and and fall from April. We advice traders to hold the position till the expiry of April contracts.

 

Published on March 18, 2018

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