F&O Call: Nandish Shah recommends Bull Spread strategy on Bharat Forge

The derivative analyst from HDFC Securities recommends to Buy Bharat Forge 880 Call and simultaneously Sell 900 Call for the January expiry.

Derivative Strategy

Bull Spread Strategy on Bharat Forge

Buy Bharat Forge (25-Jan Expiry) 880 Call at Rs 30 & simultaneously sell 900 Call at Rs 21

Lot Size 1,000

Cost of the strategy Rs 9 (Rs 9,000 per strategy)

Maximum profit Rs 11,000; If Bharat Forge closes at or above 900 on 25-Jan expiry.

Breakeven Point Rs 889

Approx margin required Rs 30,800

Rationale:

• We have seen long rollover in the Bharat Forge Futures on Thursday, where we have seen 5 per cent addition (Prov) in Open Interest with price rising by 0.50 per cent.
   
• The stock price has broken out on the monthly chart to close at an all-time high.
   
• The primary trend of the stock is positive as stock price is trading above its 100 and 200 day EMA.
   
• Momentum Oscillators like RSI (11) and MFI (10) are placed above 60 on the monthly 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.