After a strong rally last week, the outlook for the stock of Ashok Leyland (₹246.38) turned distinctively positive. It has the potential to reach ₹275-280 region. On the other hand, the stock finds an immediate support at ₹228. A close below this could drag the stock to ₹207. We expect the current bullish trend to continue in the short term.
F&O pointers: Ashok Leyland August futures closed at ₹248.16, at a premium against the spot close of ₹246.38, signalling rollover of long positions. The open interest of Ashok Leyland futures surged from 60 lakh shares to 5.78 crore shares in the last 10 days.
However, due to a strong rally on Friday, Ashok Leyland August futures shed open positions (nearly one crore shares).
Strategy: Consider a bull call spread on Ashok Leyland using 250-strike and 255-strike calls. This can be initiated by selling 255-call and simultaneously buying 250-strike call. As these options closed at ₹4.70 and ₹6.70 respectively, the net cost will be ₹2/lot — ₹10,000 (market lot 5,000 shares).
The premium paid will be the maximum loss. A profit of ₹15,000 is possible, if Ashok Leyland moves above ₹255. Exit the position at a profit of ₹12,000 or at a loss of ₹6,500.
Follow-up: We advised strangle on Nifty Midcap Select. As the index swung wildly, it could have provided profit opportunities.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading