Derivative Strategy
Bull Spread Strategy on M&M Finance
1) Buy M&M Finance (26-Sept Expiry) 330 Call at Rs 8.7 & simultaneously sell 340 Call at Rs 5.20
Lot Size 2.000
Cost of the strategy Rs 3.5 (Rs 7000 per strategy)
Maximum profit Rs 13,000 If M&M Finance closes at or above Rs 340 on 26 Sept expiry.
Breakeven Point Rs 333.5
Risk Reward Ratio 1:1.86
Approx margin required Rs 23,000
Rationale:
— Long build up is seen in the M&M Finance Futures during the September series till now where we have seen 7 per cent rise in Open interest with price rising by 5 per cent.
— Stock price has broken out on the weekly chart from the downward sloping trendline with rise in volumes.
— Stock price has been forming bullish higher top higher bottom formation on the monthly chart.
— Momentum Indicators and Oscillators are showing strength in the current uptrend of the stock.
Note : It is advisable to book profit in the strategy when ROI exceeds 20 per cent.
(Disclaimer: Nandish Shah is a senior technical/derivative analyst at HDFC Securities. Views expressed are his own.)
First Published: Sep 13 2024 | 6:24 AM IST
