The stock of Tata Motors DVR (Rs.295) looks promising from a long-term perspective. The stock now faces a key resistance at Rs.304 and a close above this level will trigger a fresh rally in the stock, which could take it higher to Rs.326 or even to Rs.356 levels.
F&O pointers:
The Tata Motor DVR futures witnessed just 6 per cent in rollover to December series. Options are less active in December series. Current option series indicates support at Rs.290.
Strategy:
Traders can consider a bull-call spread on Tata Motors DVR using December contracts. This trading strategy is best suited for traders who wish to take only a limited risk and expect the stock to move up in the near term.
The bull-call spared can be applied by buying Rs.310-call and simultaneously selling Rs.300-call of December contracts. They closed with a premium of Rs.7.95 and Rs.11.05 per contract respectively. This strategy involves an initial outflow of Rs.3.1 per contract or Rs.6,510, which could be the maximum loss one can incur. Market lot is 2,100 shares a contract.
A maximum profit of Rs.14,490 (Rs.6.9) is possible if the stock closes at or above Rs.310 at the time of expiry. The strategy can incur loss if the stock closes at or below Rs.300 at the time of expiry. We advice traders to hold the position till expiry or until the loss mounts to Rs.2,500.
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