Future Perfect. Bull-call spread on bruised Gail

Despite a sharp fall last week, the stock of Gail India (₹332) is still ruling at a crucial level. Its immediate support is at ₹309 and the crucial one at ₹273. A conclusive close below the latter will alter the long-term positive outlook for Gail India. And only a close above ₹365 will change the short-term outlook to positive. Till such time, the stock is expected to stay range-bound with a negative bias.

F&O pointers : Gail India futures added 19.76 lakh shares in open interest on Friday, despite the stock falling steeply. However, it seems most of them are on the long side, as Gail India did make a strong recovery from the day’s low level on Friday. Option trading indicates the stock could swing between ₹280 and ₹350.

Strategy : Traders can initiate a bull-call spread on Gail India. This can be done by buying the ₹340-call and simultaneously selling the ₹350-call. These options closed with a premium of ₹12.75 and ₹9.15, respectively. As the market lot is 2,667 shares per contract, this will cost traders around ₹9,600. This will be the maximum loss one can suffer in this strategy and that would happen if the stock fails to make recovery and closes at or below ₹340.

A maximum profit of ₹17,068 is possible if the stock climbs above ₹350. We advise traders to hold the position till expiry. They could ignore the strategy if the stock continues its downtrend on Monday, too. This strategy is apt for traders who can withstand wild swings.

Follow-up : Book profits in Maruti Suzuki.