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

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.

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