Last Updated : Jun 25, 2018 11:13 AM IST | Source: Moneycontrol.com

Deploy Bull Call Spread ahead of expiry; 3 stocks which could give 15-29% return

Smallcap stocks are always vulnerable and toxic in nature as compared to the midcap and largecap stocks, said Jaydeb Dey of Stewart & Mackertich Wealth

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Todays L/H

Maximum long OI buildup in 10,900-CE and 11,000-CE suggests long bias in index future is likely to persist till the June series expiry, hence, a “Bull Call spread can be deployed ahead of June series expiry," Jaydeb Dey, Technical Analyst at Stewart & Mackertich Wealth Management, said in an interview with Moneycontrol’s Kshitij Anand.

The Nifty50 on weekly basis closed flat but with a positive bias. What does weekly, and monthly chart tell about the technical picture?

The Nifty on the weekly chart ended flat, and the broader pattern suggests that the index continues to oscillate in a symmetrical triangle and steadily move towards the apex.


Crucial development that happened this week is it rebounded exactly from the 61.8 percent Fibonacci retracement level of the entire corrective leg from its recent all-time highs around 11,120 to the low of 9,952.

The lower ascending trend line support placed around 10,670 levels remained unharmed. Also, a recovery above 10,800 levels nearer to the upper descending trend line resistance on the last session of the week is invigorating for the bulls.

Going by the broader pattern, where the primary uptrend is still well intact but there is no indication of an advance breakout in RSI on the daily chart.

Hence, Nifty may continue to face resistance on the rise around 10,860 levels. Successive closing above 10,860 is the utmost requirement for unfolding next leg of up-move up to 10,950.

This is expiry week for June series. Any particular strategy which investors can deploy ahead of the event?

Since the last two months, India VIX traded in a range of 10-15, which is pointing towards consolidation. A breakout on either side is necessary for the trend reversal which is not evident yet.

However, given the broader technical scenario stated earlier and the June series Option data that suggests, Nifty base formation around 10,700 levels.

Hence Nifty is unlikely to see a further dip below 10,700 levels. Maximum long OI buildup in 10’900-CE and 11,000-CE suggests, long bias in Index future is likely to persist till the June series expiry and it may once again challenge higher resistances placed around 10,860 and 10,950.

Given this, a Bull Call spread- buy 10,850-CE and sell 10,950-CE strategy is advised.

Many stocks hit fresh 52-week lows last week instead of 52-week highs. We have seen that happening throughout June. What should investors do with stocks hitting lows — hold or exit?

Investors should not hold such stocks for too long that continue making 52-week lows unless they have reached their long-term critical supports. Instead, parking your monies in large cap pharma stocks (Lpuin, Glenamrk, Sun Pharma), FMCG stocks (Colagte Palmolive, ITC) and leading financial services stocks (M&M Financial, Bajaj Finserv) is advisable.

What is your call on smallcap and midcap stocks? Should investors stay away or just book profits on rallies?

The smallcap stocks are always vulnerable and toxic in nature as compared to the midcap and largecap stocks. Considering their exposure to toxic monies, especially when Nifty smallcap index has been in a successive downtrend since last few months, we recommend sell on the rise and stay away for the time being.

Top 3-5 positional call which could give handsome returns to investors in next 1 month?

Glenmark Pharma: Buy| CMP Rs 599.85 on dips| Stop Loss below Rs 560| Targets: Rs 640-690| Return 15%

Lupin: Buy| LTP: Rs 902.90| Stop Loss: Rs 820| Targets: Rs 960-1060| Return 17%

Punjab National Bank: Buy| CMP: Rs 81.90| Stop Loss: Rs 70| Targets: Rs 95-105| Return 29%

Disclaimer: The author is Technical Analyst at Stewart & Mackertich Wealth Management Ltd. The views and ideas expressed above may have been suggested to the clients of Stewart & Mackertich Wealth Management Ltd. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Jun 25, 2018 09:28 am