Market Strategy

Build a bullish spread on Bank of Baroda

K.S. Badri Narayanan Bank of Baroda | Updated on November 16, 2013 Published on November 16, 2013

Bank of Baroda (Rs 603.65): The long-term outlook still remains negative for Bank of Baroda (BoB). Only a close above Rs 768 will negate the current bearish outlook for the stock. A close above Rs 878 will change the long-term outlook positive. However, the short-term outlook turned positive for BoB. It finds immediate resistance at Rs 686 and the support at Rs 563.

F&O pointers: The BoB November futures witnessed unwinding of open interest positions, indicating profit-taking by some traders. Option trading indicates Rs 640 as a crucial level on the higher side and Rs 560 on the down side.

Strategy: Traders could consider bull-call spread on BoB. A bull-call spread is a type of vertical spread that involves selling and buying of call options with the same expiration but different strikes. The strike price of the short call is higher than the strike of the long call, which means this strategy will always require an initial outlay (debit). The short call’s main purpose is to help pay for the long call’s upfront cost.

Here, bull-call spread can be initiated by selling 640 call and simultaneously buying 600 call. The contracts closed with a premium of Rs 25.5 and Rs 9.55 respectively, which will trigger a net outflow of Rs 15.95. The maximum loss in this strategy is the initial amount paid, which occurs if BoB closes below Rs 600. A maximum profit in this strategy works out to Rs 24.05 a contract, which occurs, if the stock closes above the higher strike price of Rs 640. Market lot is 500/contract. Exit the position, if the combined premium dips to Rs 7.8.

Alternatively, traders could also consider going long on BoB futures. A stop-loss can be placed at Rs 566 initially and revised upwards to Rs 594 if it sustains above Rs 606.

Follow-up: Last week, we advised traders to consider going long on Arvind. The position is in positive zone. Traders can hold or roll-over as mentioned last week, according to their risk profile.



( Note: Feedback or queries (on positions) may be sent to blfuturesoptions@gmail.com by Sunday noon. Replies will be published on Monday.)

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