An option strategy in ICICI Bank

The outlook for ICICI Bank (₹1026) has turned positive. It now finds immediate resistance at ₹1,125 and support at ₹970.

As long as ICICI Bank stays above ₹955, there will be no threat to the stock’s current rally. A close above ₹1,185 will also change the long-term outlook positive for the stock. In such a scenario, the stock has the potential to breach its all-time high of ₹1,277.

F&O pointers: ICICI Bank futures witnessed a modest rollover of about 15 per cent to March month series. Current month options indicates a neutral view, as both call and put shed open positions. Activity in March month series is very low as only ₹950 and ₹1,050 strikes witnessed some action.

Strategy: With just four days left for settlement, traders can set up a strategy by selling current month ₹1020-call and simultaneously buying ₹1100-call of next month series. They closed at a premium of ₹16 and ₹11.50 respectively. This strategy will result in an initial inflow of ₹1,125.

Maximum profit occurs if ICICI Bank stays around ₹1,020 in the near-term and start rising after Thursday.

Once the near month options expire worthless, this strategy turns into a discounted long call strategy and so the upside profit potential for this strategy becomes unlimited.

However, loss occurs if ICICI Bank rises sharply before the expiry of the current month series but fails to sustain the gains and reverses the direction thereafter in March.

But potential for loss is very less in this strategy. Traders could exit if the March option premium hits ₹50 or ₹5. It may be noted that writing (selling) options involves higher margin commitments.

Follow-up: Last week, we had advised short-strangle on Adani Enterprises. Contrary to our expectation, the stock surged sharply last week.

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