Analysts suggest a call ladder play for Tata Motors

Mumbai: Rich traders eyeing a low to zero cost strategy, excluding transaction charges, could initiate a call ladder spread on Tata Motors, with the company's consolidated quarterly numbers being better than anticipated.

The strategy involves buying a 140 call, and selling a 150 and 160 strike call, with all options expiring on November 26.

Using Tuesday closing rates, a trader pays Rs 9.1 a share (5,700 shares make one lot) for the 140 call. She simultaneously sells the 150 and 160 calls for a combined Rs 9.25 a share, receiving a credit of 15 paise a share. This means if Tata Motors expires below Rs 140 in November, there is no loss.


With the credit, the potential gain is Rs 10 a share, which happens if Tata Motors expires at Rs 150 or Rs 160. The loss happens only if Tata Motors breaks above Rs 170, the upper breakeven point (UBEP).

For example, at 170, the purchased 140 call is Rs 30 in-the-money (ITM), the 150 call is Rs 20 ITM and the 160 call is Rs 10 ITM — no profit no loss. Each point move above Rs 170, results in a loss.

Rajesh Palviya, derivatives head of Axis Securities said chances of a loss are slim as the stock would have to rally more than 24 per cent above the UBEP. SK Joshi, director, Khambatta Securities, expects an up move of Rs 7-10 in the stock, post the numbers and terms the strategy “prudent” for the affluent.