F&O Call: Nandish Shah recommends Bull Spread strategy on IOC

The derivative analyst from HDFC Securities recommends to Buy IOC 83 Call and simultaneously SEll 85 Call of the January expiry.

Derivative Strategy

Bull Spread Strategy on Indian Oil Corporation (IOC)

Buy IOC (25-Jan Expiry) 83 CALL at Rs 1.10 & simultaneously sell 85 CALL at Rs 0.40

Lot Size: 9,750

Cost of the strategy: Rs 0.70 (Rs 6,825 per strategy)

Maximum profit: Rs 12,675; if IOC closes at or above Rs 85 on 25-Jan expiry.

Breakeven Point: Rs 83.70

Approx margin required: Rs 28,400

Rationale:

• We have seen long build up in the IOC futures on Thursday, where we have seen 2 per cent addition (Prov) in Open Interest with price rising by 1 per cent.
   
• The stock price has broken out from the downward sloping trendline on the weekly chart.
   
• Primary and intermediate trend of the stock is positive as stock price is trading above all important moving averages.
   
• Momentum Oscillators like RSI (11) and MFI (10) are sloping upwards and placed above 60 on the daily chart, Indicating strength in the current uptrend.

Note: It is advisable to book profit in the strategy when ROI exceeds 20 per cent.

Disclaimer: Nandish Shah is Sr. Derivatives & Technical Research Analyst at HDFC Securities. He doesn't hold any position in the stock. Views are personal.