F&O Strategy: Here's why you should adopt Bear Spread on AB CAPITAL

Buy AB Capital Rs 170 Put option and simultaneously Sell Rs 165 Put of the June series, suggests Nandish Shah, Sr. derivatives & technical research analyst of HDFC Securities.

Derivative Strategy

BEAR SPREAD Strategy on AB CAPITAL

Buy Aditya Birla Capital (29-JUNE Expiry) 170 PUT at Rs 2.45 & simultaneously sell 165 PUT at Rs 0.95

Lot Size 5,400

Cost of the strategy Rs 1.5 (Rs 8,100 per strategy)

Maximum profit Rs 18,900; If AB CAPITAL closes at or below Rs 165 on 29-June expiry.

Breakeven Point Rs 168.5

Approx margin required Rs 32,400

Rationale:

• We have seen short build up in Aditya Birla Capital Futures, where we have seen 21 per cent rise in Open Interest (Prov) with Aditya Birla Capital falling by 5 per cent.
   
• Stock price has given bearish breakout on the daily chart where it closes at lowest level since 06-June.
   
• Short term trend of the AB Capital turned weak as it has closed below its 5- and 11-day EMA.
   
• RSI Oscillator(11) has formed negative divergence on the daily chart.

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.