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Option strategy of the day | CanFin Homes sees futures long addition; use covered call strategy for upside

CanFin Homes long additions were noted in futures as the combined open interest increased by 2 percent

June 12, 2024 / 10:58 IST
Can Fin Homes at 10 am on June 12, trades at Rs 795 up 4 points

CanFin Homes stock is in a higher high, higher low formation on daily charts and is trading above all important short-term moving averages, supporting the upmove.

According to Avani Bhatt, Vice President of Derivative Research at JM Financial, "It has given a breakout above the weekly resistance of 765, with a target set at 835."

To capture this upside momentum, Avani suggests a covered call strategy:

WhatsApp Image 2024-06-12 at 8.57.23 AM

Strategy: Buy June futures at Rs 791 and sell June 790 CE at Rs 22

Target: Profit Rs. 17,500
Stop Loss: Below 765 (Spot level)

Margin Required: Rs.1,95,500
Profit Potential: 9 percent

Derivative Outlook

In the derivatives market, long additions were noted in futures as the combined open interest increased by 2 percent, while June futures alone witnessed strong short covering of 5 percent.

"Implied volatility of the 800 strike calls for the June series noted a surge, hinting at buying interest building up, which is a positive sign," said Bhatt.

Bhatt notes that given the range-bound consolidative price action in the index, some minor consolidation may trickle down into stocks as well. "Hence, we recommend a covered call strategy for the stock to mitigate risk and maintain a balanced approach," said Bhatt.

A covered call is an options trading strategy that offers limited return for limited risk. A covered call involves selling a call option on a stock that you already own. By buying the stock, you're “covered” (i.e. protected) if the stock rises and the call option expires in the money.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Sucheta Anchaliya
first published: Jun 12, 2024 10:58 am

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