Consider bull-call spread on HDFC Life

The outlook for HDFC Life Insurance Company has turned positive after the recent gains. The stock now finds an immediate support at ₹499 and the next one at ₹453. A close below ₹422 will change the long-term outlook negative for the stock. If the current trends sustain, HDFC Life will cross its previous peak of ₹646 and can hit ₹725. We expect the stock to move in a narrow range with a positive bias.

F&O Pointers: HDFC Life Insurance futures at ₹ 572.50 is ruling slightly in premium over the spot close of ₹572.15. However, in the last two days, HDFC Life shed open positions, signalling traders prefer to book profits on gains. Option trading indicate a range of Rs 500-600 for the stock.

Strategy

We advise traders to consider a bull-call spread on HDFC Life. This can be used by selling ₹580-call and simultaneously buying the ₹570-call. They closed with a premium of ₹18.35 and ₹22.85, respectively. That means, the strategy will cost traders ₹4.50 a contract. As the market lot is 1,100 shares, traders need to spend ₹4,950, which would be maximum loss one can suffer. That will happen if the stock slips below ₹570.

On the other hand, a profit of ₹5.50 or 6,050 is possible, if HDFC Life moves past ₹580. We advise traders to hold the position till expiry or exit if the profit is achieved.

Follow-up

Hold Reliance short strangle strategy recommended last week. The strategy is currently in positive.

Source: The Hindu Business Line