Future perfect: Bull-call spread on SAIL

Though the long-term outlook of Steel Authority of India (SAIL) remains bearish, we expect the stock to show a sideways trend. The stock (at ₹53.40) rules at a crucial level.

One more conclusive close above ₹53 can trigger a rally. The stock finds immediate resistance at ₹63.50 and the next one at ₹84. A conclusive close below ₹48.5 can drag it to ₹40.

 

 

F&O pointers: SAIL January futures added just 24,000 shares in open interests on Friday.

The counter has been seeing unwinding of positions from 8.05-crore shares on December 31 to 7.70-crore shares, signalling traders' lack of confidence. Option trading indicates a range of ₹50-60.

Strategy: Traders can consider a bull-call spread on SAIL. This can be initiated by selling ₹55-strike call that closed at ₹1.45 and simultaneously buying the ₹52-strike-call, which closed at ₹2.95.

This will ensure an initial outflow of ₹1.5 per contract, that is ₹18,000, as the market lot is 12,000 per unit. The maximum loss and profit one can earn in this strategy is ₹18,000.

While the loss will happen if the stock falls below ₹52, a close at or above ₹55 will turn the position to positive.

We advice traders to exit the position if the loss mounts to ₹7,500.

Alternatively, traders who have the ability to take high risks and withstand huge swings, can consider going long on SAIL futures with a trailing stop loss at ₹50.

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