Bullish on RIL stock? You can initiate a long calendar spread

Mumbai: Traders bullish Reliance Industries could initiate a long calendar spread on its options.

The strategy involves selling a 2100 front-month Call and the simultaneous purchase of a 2200 Call expiring August 27 for a target of Rs 2,300 next month.

The idea is to take advantage of theta or time decay in the July 30 expiry option. Also, its sale cuts the upfront cost of the 2200 Call.


Using Thursday prices, sale of the 2100 July Call fetches the trader Rs 39 a share (505 shares equal one lot).

This cuts the cost of the purchased August 2200 Call from 64 a share to just 25, the maximum loss if RIL expires below Rs 2,200.

If RIL rises this month toward 2,200, the trader is hedged as the purchased 2200 August Call premium will rise more as it consists of greater time value.

Analysts like Rajesh Palviya of Axis Securities and Chandan Taparia of Motilal Oswal have suggested the strategy for bulls.

Shorts on RIL futures and call options have been forced to square-off their positions, adding to the stock’s impetus.