Tuesday, April 5, 2016

Consider bull-call spread on BoI

The long-term outlook will remain negative for Bank of India (Rs.100) as long as it stays below Rs.219. However, the short-term outlook has turned positive for the stock. If the current trend sustains, Bank of India can rise to Rs.129. The next resistance appears at Rs.147.

However, the stock finds immediate support at Rs.92 and the next major one at Rs.84.

F&O pointers: 

The BoI April futures added fresh long positions. Trading in options indicates that Rs.100 could be a crucial level for the stock.


Traders could consider a bull-call spread on Bank of India. This can be constructed by buying Rs.100-April-call and simultaneously selling the Rs.110-April-call. These calls closed with a premium of Rs.5.90 and Rs.2.30 respectively.

To adopt the strategy, traders have to fork out Rs.3.6/option (or Rs.10,800). This will be the maximum loss one can incur in this strategy. For that to happen, Bank of India has to close at or below Rs.100.

However, a close at or above Rs.110 will yield a maximum profit of Rs.6.4./option (Rs.19,200). This strategy is for traders who can understand the risk associated with it. Besides, the April 5 RBI monetary policy can influence the share price movement in big way.

Traders can exit from the position if the loss mounts to Rs.6,500. We advice the traders hold the position for at least two weeks.

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