HDFC Securities recommends a BULL SPREAD strategy on Larsen & Toubro

Nandish Shah, Sr. derivatives & technical research analyst, recommends to Buy LARSEN 2300 Call option and simultaneously Sell 2400 Call of the May series.

Derivative Strategy

BULL SPREAD Strategy on Larsen & Toubro

Buy LARSEN (25-MAY Expiry) 2300 CALL at Rs 57 & simultaneously sell 2400 CALL at Rs 19

Lot Size 300

Cost of the strategy Rs 38 (Rs 11,400 per strategy)

Maximum profit Rs 18,600; If LARSEN closes at or above Rs 2400 on 25-May expiry.

Breakeven Point Rs 2,338

Approx margin required Rs 24,200

Rationale:

• We have seen long build up in LARSEN Future, where we have seen 27 per cent addition in  Open Interest (Prov) with price rising by 1.1 per cent.
   
• Primary and intermediate trend of the stock is positive as stock price is trading above important moving averages.
   
• Stock price has been forming bullish higher top higher bottom formation on the daily chart.
   
• Oscillators and momentum Indicators are showing strength in the current uptrend.

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

 

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