The stock of Tata Power (₹414.85) is ruling at a crucial level. The immediate support is at ₹396. A conclusive close below this will change the outlook negative for Tata Power. In that event, the stock could reach ₹359. On the other hand, Tata Power finds immediate resistance at ₹436, a close above which will lift the stock to new high.
F&O pointers: The May Tata Power futures closed at ₹417.20 and June futures at ₹419.95 against spot price of ₹414.85. The premium indicates build-up of long positions.
Strategy: Traders could consider a diagonal bull-call spread using May and June option contracts. This can be initiated by selling ₹400-call of May expiry and simultaneously buying ₹420-call of June series. These options closed with a premium of ₹22.50 and ₹26.70 respectively.
As the market lot is 3,375 shares, this will cost traders ₹14,175. (i.e., net cost of ₹4.2 multiplied by 3,375 shares). This will be the maximum loss in this trade, which will occur if Tata Power fails to cross ₹420 by the time of June expiry. The breakeven point is ₹424.20.
On the other hand, profit potentials are very high, if Tata Powers falls in the current series and rises sharply in June. Traders should also keep in mind that general election results will be out on June 4, which will keep the market volatile. We advise traders to hold the position for at least two weeks.
Follow-up: Stop loss would have triggered in Coal India trade.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading