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Derivative Strategy
Bull Spread Strategy on M&M Finance
Buy M&M Finance (29-Dec Expiry) 220 Call at Rs 8.15 & simultaneously sell 230 CALL at Rs 4.15
Lot Size: 4,000
Cost of the strategy: Rs 4 (Rs 16,000 per strategy)
Maximum profit: Rs 24,000; If M&M Finance closes at or above Rs 230 on 29-Dec expiry.
Breakeven Point: Rs 224
Approx margin required: Rs 31,000
Rationale:
We have seen long build up in the M&M Finance futures on Thursday, where we have seen 4 per cent addition (Prov) in Open Interest with price rising by 2 per cent.
The short term trend of the stock is positive as it is trading above its 11- and 20-day EMA.
The stock price is on the verge of breaking out from the downward sloping trendline, adjoining the highs of 15-Sept and 11-Nov 2022.
The momentum Oscillators like RSI (11) and MFI (10) are in rising mode and placed above 60 on the daily chart, indicating strength in the current uptrend.
Note : It is advisable to book profit in the strategy when ROI exceeds 20%.
Disclaimer: Nandish Shah is Sr. Derivatives & Technical Research Analyst at HDFC Securities. He doesn't hold any position in the stock. Views are personal.
