RPower: Catch the spark

Thanks to a strong rally in Reliance Power’s stock (₹50.2) last week, the immediate term outlook is positive. While Reliance Power finds an immediate resistance at ₹54.10, a close above that level could lift the stock towards ₹60. The positive outlook of Reliance Power will get negated if the stock fails to sustain above ₹43.40. The long-term outlook will be positive only if the stock manages to close above ₹80.

F&O pointers: Though open interest almost doubled on Friday, RPower January futures shed open interest, signalling profit booking. Option trading indicates that the stock could move in the ₹50-₹55 range.

Strategy: Traders could consider a bull call spread on Reliance Power. This can be initiated by buying ₹50-strike call and simultaneously selling the ₹52.50-strike call. As the market lot is 13,000 shares per unit, this strategy will cost investors ₹12,350, which would be the maximum loss one could suffer. For that to happen, RPower has to settle at or close below ₹50. On the other hand, a profit of ₹20,150 is possible, if Reliance Power manages to close at or above ₹52.50. Consider quitting the position if the loss mounts to ₹8,500.

Follow-up: Consider holding Maruti Suzuki ₹9,600-put position.

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