The stock of State Bank of India (₹431.2) is ruling at a crucial level. The stock finds an immediate support at ₹418 and a major one at ₹389. A conclusive close below the latter will arrest the short-term bull run on SBI. On the other hand, if the current rally sustains, the SBI stock can cross the ₹500-mark to reach a peak of ₹505-510. On the other hand, a close below ₹354 will also change the medium term outlook to negative. We expect the stock to continue the rally although there are minor resistances here and there.
F&O pointers: Ever since the stock hit an all-time high at ₹467.45 in early August, it has been correcting and currently is at at ₹431.20; whereas the August futures is at ₹431.80. Option chain indicates ₹430 and ₹400 will act as a strong support and ₹460 as a resistance for the stock.
Strategy: Traders could consider a calendar bull-call spread on SBI. This can be initiated by selling ₹435-call of current series and simultaneously buying the ₹435-call of September series. These options closed with a premium of ₹7.65 and ₹17. This will cost traders ₹9.35/contract or ₹14,025 (market lot: 1,500 shares) and this will be the maximum loss one can suffer. This will happen if SBI closes at or below ₹435 on expiry. On the other hand, profit potential is huge if the SBI stock crosses ₹444.35. Hold the position at least till the second week. Traders could consider exiting the position at a profit of ₹17,500 or at a loss of ₹10,500 from this strategy.
Follow-up: Recommendation on PNB could have generated profit last week, as the stock is still ruling below ₹38. Those who have not booked profits can exit with profit.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading.