Nandish Shah of HDFC Securities suggest 'bull spread' on Torrent Pharma

Derivative Strategy

 

BULL SPREAD Strategy on TORRENT PHARMA

 

Buy Torrent Pharma (26-Dec Expiry) 3,500 CALL at Rs 34; simultaneously sell 3600 CALL at Rs 12

• Lot Size 250
• The cost of the strategy is Rs 26 (Rs 5,500 per strategy)
• Maximum profit Rs 19,500 If Torrent Pharma closes at or above Rs 3600 on 26 Dec expiry.
• Breakeven Point Rs 3,522
• Risk Reward Ratio 1: 3.55
• Approx margin required is Rs 30,300

Rationale:

• A long build-up is seen in the Torrent Pharma Futures, where we have seen an 18 per cent rise in the open interest with prices rising by 2.5 per cent.
• The stock price has broken out on the daily chart with higher volumes.
• The stock price has been forming bullish higher top higher bottom formation on the weekly and monthly charts.
• Momentum Oscillators like RSI and MFI are in rising mode and placed above 60 on the daily chart, indicating strength in the current uptrend.

(This article is by  Nandish Shah, senior technical/derivative analyst at HDFC Securities. View expressed are his own.)