Technical Analysis

Plan a long call calendar spread on SBI

KS Badri Narayanan | Updated on May 27, 2018 Published on May 27, 2018


Despite a strong recovery recently, the outlook for the stock of State Bank of India (₹267.6) remains cautious. One more conclusive close above ₹263 is needed to change the outlook to positive. Immediate resistance is at ₹296 and a close above ₹313 will turn the long-term outlook to positive. A crucial support is at ₹242, a close below which can drag the stock to ₹220 levels.

F&O pointers: SBI futures witnessed a rollover of open interest of about 18 per cent to next month. It appears most of them are on the long side. Trading in the option indicates that the stock could move in the ₹250-270 range. Heavy build-up in ₹250 put options indicates that the stock faces strong support at that level.

Strategy: Traders can consider a long call calendar spread on SBI. This can be initiated by selling the ₹265-call of the current series and, simultaneously, buying the same strike call of June month. They closed with a premium of ₹5.75 and ₹12.30 respectively. Market lot is 3,000. This strategy will ensure an initial outgo of ₹6.55/contract (or ₹19,650), which would be the maximum loss. That will happen if SBI fails to sustain above ₹271.5. However, profit potentials will be huge, if the stock rallies sharply in June. A decline in this series and a sustained gain in June will enhance the profitability. Hold the position till mid-week of June. Consider exiting the position if the loss mounts to ₹8,500.

Follow-up: Hold Titan Company with the stop-loss mentioned.

Published on May 27, 2018
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