Bharat Forge: Check why a bull-spread strategy is suitable for this stock

Buy Bharat Forge 860 CALL at Rs 21.25 & simultaneously sell 900 CALL at Rs 9.25 of the July series, suggests Nandish Shah, Sr. derivatives & technical research analyst of HDFC Securities

Derivative strategy

BULL SPREAD Strategy on BHARAT FORGE

Buy BHARAT FORGE (27-July Expiry) 860 CALL at Rs 21.25 & simultaneously sell 900 CALL at Rs 9.25

Lot Size: 1,000

Cost of the strategy: Rs 12 (Rs 12,000 per strategy)

Maximum profit Rs 28,000 if Bharat Forge closes at or above 900 on 27 July expiry

Breakeven Point: Rs 872

Approx margin required: Rs 30.000

Rationale

>> Seen long build up in Bharat Forge during the July series till now, with over 10 per cent addition in Open Interest (Prov) with price rising by 5 per cent

>> Primary trend of the stock is positive as stock price is trading above its 100 and 200 day EMA

 

>> Stock price has broken out on the daily chart from the downward sloping trendline, adjoining the highs of 13-Feb-2023 and 19-June 2023

>> Oscillator like RSI (11) and MFI (10) is in rising mode and placed above 60 on the daily chart suggesting strength in the current uptrend

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.