Derivative strategy: Bull spread recommended on SBI for May series

Derivative Strategy

BULL SPREAD Strategy on SBI

Buy SBI (30-MAY Expiry) 820 CALL at Rs 21.25 & simultaneously sell 850 CALL at Rs 11.25

Lot Size 1500

Cost of the strategy Rs 10 (Rs 1,500 per strategy)

Maximum profit Rs 30,000 If SBI closes at or above Rs 850 on 30 May expiry.

Breakeven Point Rs 830

Risk Reward Ratio 1:2

Approx margin required Rs 42600

Rationale:

Long build up is seen in the SBI Futures where we have seen 34 per cent (Prov) rise in Open interest with price rising by 5 per cent.

Stock price has broken out on the daily chart with higher volumes to close at all time high levels. Stock price has been forming bullish higher top higher bottom formation on the weekly charts. RSI Oscillator is in rising mode and placed above 60 on the daily chart, indicating strength in the stock.

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.