Derivatives analyst Nandish Shah recommends bull spread strategy on L&T

The analyst from HDFC Securities recommends buying 1920 Larsen & Toubro October Call and selling 1960 Call of the same series.

Derivative Strategy

Bull Spread Strategy on Larsen & Toubro (L&T)

Buy Larsen (27-oct Expiry) 1920 CALL at Rs 42.45 & simultaneously sell 1960 CALL at Rs 26.45

Lot Size 300

Cost of the strategy Rs 16 (Rs 4,800 per strategy)

Maximum profit Rs 7,200; If L&T closes at or above Rs 1,960 on 29 Sept expiry.

Breakeven Point Rs 1936

Approx margin required Rs 25,000

Rationales:

• We have seen long build up in the Larsen futures on Thursday, where we have seen 5 per cent addition (Prov) in Open Interest with price rising by 2 per cent.
   
• During the recent correction, the stock price took support at 100-day EMA and reversed northwards. 
   
• The short-term trend of the stock turned positive as stock price is trading above its 5-, 20-day EMA.
   
• The momentum oscillator RSI (11) is in rising mode and placed above 50 on the daily chart, indicating strength in the current uptrend.

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