F&O strategy: Analyst recommends Bull Spread on Cipla, United Spirits

Here's why Nandish Shah technical research analyst of HDFC Securities recommends a 'Bull Spread' strategy on Cipla and United Spirits derivatives for the July series.

Derivative Strategy by Nandish Shah of HDFC Securities

BULL SPREAD STRATEGY ON UNITED SPIRITS

  Buy UNITED SPIRIT (28-July Expiry) 1400 CALL at ₹25 & simultaneously sell 1450 CALL at ₹12  Lot Size 400  Maximum profit ₹14800; If UNITED SPIRITS closes at or above 1450 on 28 July expiry.  Maximum Loss ₹5200; If UNITED SPIRITS closes at or below 1400 on 28 July expiry.  Breakeven Point 1413  Risk Reward Ratio 1: 2.85  Approximate margin required ₹20,000  Rationale:  Long build up is observed in United Spirits futures, as open interest has increased alongside a rise in price.  Short-term and positional trends remain strong, with stock trading above its 5, 20, 50, and 100-day EMAs.  Stock price has broken out from the downward sloping trendline on the daily chart.  Oscillators and momentum indicators are in rising mode and placed above 60 on the daily chart. 

BULL SPREAD Strategy on CIPLA

  Buy CIPLA (28-July Expiry) 1450 CALL at ₹40 & simultaneously sell 1500 CALL at ₹21  Lot Size 375  Maximum profit ₹13,175; If CIPLA closes at or above 1500 on 28 July expiry.  Maximum Loss ₹8,075 If CIPLA closes at or below 1450 on 28 July Expiry.  Breakeven Point 1469  Risk Reward Ratio 1: 1.63  Approximate margin required ₹21,000  Rationale:  Long build up is seen in the CIPLA Futures during the week where we have seen sharp rise in OI with price rising by 6 per cent.  Short term trend of the stock is positive as it is placed above its 5 and 11 day EMA  Stock price has formed bullish inverse head and shoulder pattern on the weekly charts.  Oscillators like RSI and MFI are in rising mode and placed above 60 on the daily chart, suggesting strength in current uptrend.  Note : It is advisable to book profit in the strategy when ROI exceeds 20%.  (Disclaimer: Nandish Shah is a senior technical/derivative analyst at HDFC Securities. Views expressed are his own.)