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Hello guys, I hope you are doing good in your trading. I was tracking the market and find a good strategy in ITC. A Bull call ladder strategy.
After corporate tax relief announcement by the finance minister, we saw a sharp upside movement in the market. Which helps to increase in volatility. When volatility is high, it’s better to collect the premium because premiums are a little high due to vega value.
The same we did in our weekly analysis post and shared a Bull call ladder in Nifty. Which is giving us 10000₹ profit till now.
Why I choose this Bull call ladder strategy, I’m sharing my analysis here. Before going further let’s look at the chart of ITC.
ITC Chart this week
This is the weekly chart of ITC. You can see ITC is trading around its strong resistance zone(Previously support zone). 200 Day simple moving average is at 264.35. Indication a downtrend in ITC.
Now there are three possibilities from here. First is it will go up, second is it will go down and third is it will consolidate here. So before initiating a strategy, we have to consider all three possibilities.
As the overall trend is down, we should keep our delta slightly negative. We know 70% time market consolidates in a range. So we should keep theta in our favour too.
Now the third point is what will we do if the script starts moving upside? What should be our adjustments? We have to keep that plan ready before initiating any strategy.
Option chain analysis for ITC
Now look at the option chain window, 260 CE has a very good Open interest and acting as strong resistance level. Next resistance is the 265 and third resistance is 270.
The same levels we are getting on charts too. Now I have to choose a strategy based on all three possibilities.
Entry rules for bull call ladder strategy
The first rule to initiate a strategy is to choose a liquid script. Now how can we check whether a script is liquid or not?
Steps are very simple. Just go to option chain window on NSE website and check BID/ASK prices. If the difference in Bid and ask price is high, that means options of that particular script is not that liquid.
We should not select that script. Here in ITC, bid/ask price is not that high that means we can choose this script.
The Second rule is because we have 3 possibilities, we should select a strategy which can fulfil our all three possibilities.
Here I’m selection Bull call ladder strategy because it is giving us a decent return on sideways and on downside movement. and I can easily adjust if it starts moving up.
ITC: Bull call ladder strategy
The strategy has 3 legs,
- Buy 260 Call option (OCT EXPIRY) – 1 lot
- Sell 265 Call option (OCT EXPIRY) – 1 lot
- Sell 270 Call option (OCT EXPIRY) – 1 lot
Max profit is 16400₹ (if ITC expires between 265 – 270).
Max loss is unlimited on the upside (If I’m not doing any adjustments).
Possible adjustments in a bull call ladder strategy
Once ITC hit 265, square off 265 CE in loss and short 275 CE. Same we have to do with 270. Once ITC hit 270, square off 270 CE and short a 280 CE.
It will increase your profit %, reduce your delta and will shift your Breakeven to a little higher level.
You can exit from this strategy once 50-80% premium erodes.
Few things keep in mind:
As this strategy has unlimited risk, this strategy is advisable to those who are familiar with option strategies. Required proper tracking and timely adjustments. So trade only if you comfortable. This strategy is not advisable to beginners.
If you have any query about this Bull call ladder strategy in ITC, just type in the comment box.
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DISCLAIMER: – we are not a SEBI research analyst. Views posted here only for educational purposes. There is no liability whatsoever for any loss arising from the use of this product or its contents. This product is not a recommendation to buy or sell, but rather a guideline to interpreting specified analysis methods. This information should only be used by investors and traders who are aware of the risk inherent in securities trading.