Options trading: Consider bull put spread for Tata Steel
Tata Steel is trading at a new high and has broken out of a 10-day cup formation. All the technical indicators are suggesting a bullish stance on the stock. The derivative volume is also significantly higher. At-the-money call option traded with the highest volume along with increased open interest. TATA Steel 960 CE has an open interest of 1,150 while 1,000 CE has 1,405 open interests. These options are trading at Rs 14.90 and Rs 3.75, respectively.
Strategy:
What is a bull call spread strategy? A bull call spread strategy includes initiating one long call with a lower strike price and one short call with a higher strike price. Both call options have the same underlying stock as well as the same expiration date.
BULL CALL SPREAD
BUY TATASTEEL 960CE @14.90
SELL TATASTEEL 1000CE @ 3.75
The breakeven point is Rs. 971
The loss at breakeven point Rs 2,000
The profit at Rs 980 is Rs 15,000
Above Rs 1,000, the profit is Rs 49,000
Or you can sell 960 PE @ Rs 15
Stop loss is Rs 20
The target is almost zero
Payoff Chart:
