Analysts suggest this play for limited downside risk while unlimited risk begins only above ₹2,480 for the current month, which is unlikely given the stock’s sharp move since March.
The strategy can be revised to buy 2,100 and sell 2,200 and 2,300 calls, said Taparia, in case of a correction.
Mumbai: Traders bullish on Reliance Industries (RIL) are being advised to initiate a cheap options strategy called bull call ladder, which has a 4:1 risk-reward, and can be held till expiry on September 24.
Analysts suggest this play for limited downside risk while unlimited risk begins only above ₹2,480 for the current month, which is unlikely given the stock’s sharp move since March.
The strategy involves purchase of a 2,200 call and simultaneous sale of one 2,300 and 2,400 call. All the options expire on September 24. Based on Wednesday closing premiums, the 2,200 call costs ₹59 a share (505 shares make one contract) while the sale of the 2,300 and 2,400 calls fetches the trader ₹40. This cuts the debit to just ₹19.
Maximum profit of ₹81, begins once the stock crosses ₹2,219 and runs through ₹2,300 and ₹2,400. Above ₹2,400, profit declines through ₹2,481, above which unlimited loss begins as an extra call has been sold at 2,400 strike. The downside risk is limited to ₹19 and will happen if RIL expires below ₹2,219.
Rajesh Palviya, derivatives head, Axis Securities, and Chandan Taparia of Motilal Oswal recommend this strategy. Options indicate a range of ₹2,000-2,200 for RIL this month and this strategy can be initiated if RIL corrects toward the lower end.
The strategy can be revised to buy 2,100 and sell 2,200 and 2,300 calls, said Taparia, in case of a correction.
