F&O strategy: go for the spread of bullish calls on Tata Power

The short-term outlook has turned positive for Tata Power (₹232.40), although only a close above ₹259 will change the long-term view to the upside. The stock finds immediate resistance at ₹242. On the other hand, the stock faces immediate support at ₹220 and the main at ₹201. A close below the latter will shift the short-term outlook too negative. We expect the stock to maintain the current momentum.

F&O pointers: Tata Power August futures closed at ₹233.40 against the spot price of ₹232.40. Even though the share price has been climbing in recent days, Tata Power August futures lost open interest in the past two days as some traders preferred to book profits. However, the contract still commands a healthy open interest position of over 8.68 crores of shares. The options chain indicates that the stock may move within a range of ₹230-250.

Strategy: We advise traders to consider a bullish call spread on Tata Power, which can be built by selling a 240-strike call and simultaneously buying a 235-strike call. These options closed with a premium of ₹3.90 and ₹5.70, meaning this strategy will cost traders ₹1.80/lot. The maximum loss is the premium paid – ₹1.80/lot or ₹6,075 and this will occur if the stock closes below ₹235 at expiry.

On the other hand, a profit of ₹10,800 is possible if Tata Power closes at ₹240 or above at the time of expiration. Since the settlement is in a few days (August 25), the position will be affected due to the deterioration of the weather. We advise traders to hold the position until expiry.

Note: Recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading.

Published on

August 13, 2022

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