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Derivative Strategy
Bull Spread Strategy on Indian Oil Corporation (IOC)
Buy IOC (25-Jan Expiry) 83 CALL at Rs 1.10 & simultaneously sell 85 CALL at Rs 0.40
Lot Size: 9,750
Cost of the strategy: Rs 0.70 (Rs 6,825 per strategy)
Maximum profit: Rs 12,675; if IOC closes at or above Rs 85 on 25-Jan expiry.
Breakeven Point: Rs 83.70
Approx margin required: Rs 28,400
Rationale:
- We have seen long build up in the IOC futures on Thursday, where we have seen 2 per cent addition (Prov) in Open Interest with price rising by 1 per cent.
- The stock price has broken out from the downward sloping trendline on the weekly chart.
- Primary and intermediate trend of the stock is positive as stock price is trading above all important moving averages.
- Momentum Oscillators like RSI (11) and MFI (10) are sloping upwards and placed above 60 on the daily chart, Indicating 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.
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