BHEL: Consider a bull-call calendar spread

Though the long-term outlook still remains negative for BHEL (₹132), in the short-term, the stock could rally. Bharat Heavy Electricals Ltd (BHEL) finds an immediate support at ₹119, which is a crucial support. A close below that price will change the outlook negative for the stock and that has the potential to weaken the stock. Immediate resistance appears at ₹146 and a close above this will take the stock towards ₹169.

F&O pointers: BHEL added 5.5 lakh shares in open interests on Friday. Open interests saw a strong surge to 3.6 crore shares from 2.82 crore shares from September 8. Option trading indicates that the stock could face a strong resistance at ₹150 level and ₹130 could act as a support.

Strategy: Traders could consider a bull-call calendar spread on BHEL. This can be initiated by selling ₹140-call of current month and simultaneously buying the same strike call of next month.

While the current series call option closed at ₹1.20, October ₹140-call closed with a premium of ₹3.60. This strategy will ensure an initial outflow of ₹12,000, as the market lot is 5000 shares.

The loss is limited to the premium paid and that will happen if BHEL remains weak and closes below ₹140 at the time of expiry. On the other hand, investors can gain handsomely if the stock rises in October.

We advise traders to hold the position till mid-October.

Follow-up: Hold Granules India as advised.

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