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Derivatives strategy on ITC by Nandish Shah of HDFC Securities

Short covering is seen in the ITC Futures' during the November series till now, where we have seen fall in Open Interest with price rising by 3%.

ITC
ITC

Bull Spread strategy on ITC

Buy ITC NOVEMBER 265 Call at Rs 6.40 & simultaneously sell 280 call at Rs 1.70

Lot Size 2400.
 
Cost of the strategy Rs 4.7 (Rs 11280 per strategy)
 
Maximum profit Rs 24720 If ITC closes at or above 280 on November expiry.
 
Break even Point Rs 269.7

Rationale:

  • Short covering is seen in the ITC Futures’ during the November series till now, where we have seen fall in Open Interest with price rising by 3%.
     
  • In the option segment, we have seen significant addition in 270 and 280 strike Call Option, suggesting Call buying.
     
  • Stock price has broken out on the daily chart by closing above the resistance level of 264 to close at three month high.
     
  • Oscillators and Momentum Indicators like RSI and MACD showing strength in the daily and weekly charts.