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The outlook appears bullish for the stock of Coal India (₹474.60). The stock finds an immediate support at ₹456.20. If the current trend sustains, the stock has the potential to hit ₹580. The long-term positive trend will get negated if Coal India slips below ₹402. But we expect the stock to sustain the bullish trend in the short term.
F&O pointers: Coal India May futures closed at ₹478.70 against the spot price of ₹474.60, signalling a decent premium and addition of long positions. Open interest has now risen to nearly 5.94 crore shares from around 51 lakh shares on April 15. Option trading indicates that the stock could move in the ₹400-500 range.
Strategy: Consider a bull-call spread by selling 480-strike call and simultaneously buying the 470-strike call. As these options closed with a premium of ₹15.80 and ₹20.85 respectively, this strategy will cost traders ₹5.05 a lot (or ₹10,605 as market lot is 2,100 shares). This will be the maximum loss in this trade.
On the other hand, a maximum profit of ₹4.95 a lot or ₹10,395 is possible, if Coal India sustains the current rally and closes above ₹480. The break-even point is ₹485.05. The risk-reward ratio is neutral due to costly option premiums.
Hold the strategy till expiry week if the profit is not achieved earlier.
Follow-up: Hold SAIL futures.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading
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