Bull spread on Chambal Fert: Buy Call at Rs 440, says HDFC Securities

Bull Spread Strategy on Chambal Fertilisers
 

1) Buy Chambal Fertilisers (27-June Expiry) 440 Call at Rs 11 & simultaneously sell 460 Call at Rs 4.6

Lot Size: 1,900

Cost of the strategy: Rs 6.4 (Rs 12,160 per strategy)

Maximum profit Rs 25,840, If Chambal Fert closes at or above Rs 460 on 27 June expiry.

Breakeven Point: Rs 446.4

Risk Reward Ratio: 1:2.12

Approx margin required: Rs 29,000

 

Rationale

-- Long build up is seen in the Chambal Fertilisers Futures where we have seen 3 per cent (Prov) rise in Open interest with price rising by 1.57 per cent.

-- Stock price has broken out on the daily chart where stock price closes at two year high.

-- Stock price has broken out on the weekly chart from the downward sloping trendline.

-- Fertiliser and chemical stocks are looking strong on the short to medium term chart.

 

Note: It is advisable to book profit in the strategy when ROI exceeds 20 per cent.

 

(Nandish Shah is a senior technical/derivative analyst at HDFC Securities. Views expressed are his own.)