F&O: A bull spread strategy for M&M Finance may be suitable for Sept series

BULL SPREAD Strategy on M&M FINANCE

Buy M&M FINANCE (28-Sept Expiry) 300 CALL at Rs 8.45 & simultaneously sell 310 CALL at Rs 4.95

Lot Size: 4,000
 

Cost of the strategy: Rs 3.50 (Rs 14,000 per strategy)
 

Maximum profit: Rs 26,000 if M&M Finance closes at or above Rs 310 on 28 Sept expiry.

Breakeven Point: Rs 303.5

Risk Reward Ratio: 1:1.86
 

Approx margin required: Rs 42,100

Rationale:

>> Short covering was seen in M&M Finance Futures on Thursday where Open Interest fell by 1 per cent (Prov) with it rising by 2.50 per cent.
 

>> The stock price is on the verge of breaking out from the downward sloping trendline, adjoining the highs of July 3 and August 31, 2023.

>> The stock price formed bullish hammer candle stick pattern on September 6.

>> RSI Oscillators is sloping upwards and is placed above 50 on the daily chart, indicting strength in the stock.

 

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

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Disclaimer: Nandish Shah is senior derivatives & technical research analyst at HDFC Securities. He doesn't hold any position in the stock/index. Views are personal.