Nandish Shah of HDFC Sec suggests 'Bull Spread' strategy on Sun Pharma

Derivative Strategy

 

Bull Spread Strategy on Sun Pharma  1) Buy Sun Pharma (January 30 expiry) 1,860 Call at Rs 38 & simultaneously

sell 1,920 Call at Rs 17

 

Lot Size 350

 

Cost of the strategy Rs 21 (Rs 7,350 per strategy)

 

Maximum profit Rs 13,650 If Sun Pharma closes at or above Rs 1,920 on January 30 expiry.

 

Breakeven Point Rs 1,881

 

Risk Reward Ratio 1: 86

 

Approximately margin required Rs 23,000

 

Rationale:

 

– Long rollover is seen in the Sun Pharma Futures to the January series, where we have seen 34 per cent rise in the open interest with price rising by 1.23 per cent.

 

– Stock price has broken out on the daily chart where it closes at the highest level since November 1.

 

– Stock price has been forming bullish higher top higher bottom formation on the weekly charts.

 

– Momentum Oscillators like RSI and MFI is in rising mode and placed above 50 on the daily chart, indicating strength in the current uptrend.

 

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