Options Trading: HDFC Securities recommends Bull Spread on ONGC

Buy ONGC 190 Call option and simultaneously Sell 195 Call of the September series, recommends Nandish Shah, Sr. derivatives & technical research analyst of HDFC Securities.

Derivative Strategy

BULL SPREAD Strategy on ONGC

Buy ONGC (28-Sept Expiry) 190 CALL at Rs 2.40 & simultaneously sell 195 CALL at Rs 1.30

Lot Size: 3,850

Cost of the strategy: Rs 1.10 (Rs 4,235 per strategy)

Maximum profit: Rs 15015; If ONGC closes at or above Rs 195 on 28 Sept expiry.

Breakeven Point: Rs 191.5

Risk Reward Ratio: 1:3.55

Approx margin required: Rs 25,300

Rationale:

• Long build up is seen in the ONGC Futures on Thursday where Open Interest surged by 17 per cent (Prov) with price rising by 2.2 per cent.
   
• Stock price has broken out on the daily and weekly chart to close at five year high.
   
• Stock price has been  forming bullish higher top  higher bottom candlestick pattern on the weekly and  monthly chart.
   
• Oscillators like RSI(11) and MFI(10) are slopping upwards and placed above 60 on the daily and weekly chart, Indicting strength in the stock.

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.