Technical Analysis

Consider a bull calendar spread on LIC

KS BADRI NARAYANAN | Updated on January 13, 2018 Published on February 19, 2017


The outlook for LIC Housing Finance (₹556.6) appears positive. The stock finds immediate resistance at ₹574 and support at ₹525. If LIC Housing Finance fails to sustain above this support, it could drop to ₹470, and a close below this level can change the outlook to negative. On the other hand, a conclusive close above ₹594 will take LIC Housing Finance to new highs.

F&O pointers: The LIC Housing Finance futures witnessed a rollover of just about 9 per cent to March series. Option trading suggests positive bias.

Strategy: Traders can consider a bull calendar spread strategy on LIC Housing Finance. This can be initiated by simultaneously selling LIC Housing Finance's February ₹540-call and buying the same strike in March. While February ₹540-call closed at ₹19.60, the March call closed at ₹32. This will entail an initial outflow of ₹12.40 or ₹13,640, as the market lot is 1,100 lot per contract.

The strategy can give unlimited profit if LIC Housing Finance turns weak in this series and rises sharply from March.

However, the loss is limited to the premium paid, that is, ₹12.40/contract. This will happen if the LIC Housing Finance price goes down and stays there until expiration of the March contracts. Exit the position if the loss touches ₹10,000. Hold the position for at least three weeks.

Follow-up: Hold Ashok Leyland position.

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