Bharat Forge option trading strategy: Deploy a bull spread for Dec expiry

Nandish Shah of HDFC Securities recommends to Buy Bharat Forge 1130 CALL and simultaneously sell 1180 CALL of the November series.

Derivative Strategy

BULL SPREAD Strategy on BHARAT FORGE

Buy BHARAT FORGE (28-DEC expiry) 1130 CALL at Rs 36 & simultaneously sell 1180 CALL at Rs 20

Lot Size 500

Cost of the strategy Rs 16 (Rs 8,000 per strategy)

Maximum profit Rs 17,000; If BHARAT FORGE closes at or above Rs 1,180 on 28-Dec expiry.

Breakeven Point: Rs 1146

Risk Reward Ratio: 1:2.12

Approx margin required: Rs 20,000

Rationale:

• Long build up is seen in the BHARAT FORGE Futures on Thursday where Open Interest rose by 10 per cent (prov) with it rising by 0.5 per cent.
   
• Stock price has broken out from the downward sloping trendline, adjoining the highs of 15-Sept and 24-Nov 2023.
   
• Stock is forming bullish higher top higher bottom formation on the weekly chart.
   
• Oscillator like RSI and MFI are in rising mode and placed above 60 on the daily chart, indicating strength in the stock.

Note: It is advisable to book profit in the strategy when ROI exceeds 20%.

Disclaimer: Nandish Shah is Sr. Derivatives & Technical Research Analyst at HDFC Securities. He doesn't hold any position in the stock. Views are personal.