F&O trade: Derivatives strategy on Larsen & Toubro for Jan monthly expiry

Derivative Strategy by Nandish Shah of HDFC Securities

BULL SPREAD Strategy on Larsen & Toubro

• Buy LT (27-Jan Expiry) 4,200 CALL at ₹45 and; simultaneously sell 4,300 CALL at ₹17
• Lot Size 175
• Cost of the strategy ₹28 (₹4,900 per strategy)
• Maximum profit ₹12,600 If Larsen closes at or above 4300 on 27 Jan expiry.
• Breakeven Point ₹4,228
• Risk Reward Ratio 1:2.57
• Approx margin required ₹25,000

Rationale:

• Short covering is seen in the Larsen & Toubro Futures where we have seen fall in OI with price rising by 1 per cent.
• Larsen & Toubro stock price has broken out on the daily chart to close at all-time high.
• Amongst the Options, put writing is seen at 4100-4120 level, suggesting limited downside in the stock.
• Momentum Indicators and Oscillators are showing strength in current uptrend.

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