The stock of Tata Consultancy Services (₹2,928.25), which successfully completed its buyback last week, remains at a crucial level.
One more conclusive close above ₹2,942 will trigger a fresh rally in the stock, which might take it to ₹3,150 or even to ₹3,425 level.
The long-term positive trend will remain as long as TCS rules above ₹2,742 and a close below ₹2,680 will change the outlook negative.
In the short term, we expect the stock to move in a narrow range with a positive bias.
F&O pointers: TCS January futures at ₹2,928.60 has closed almost on par with the spot price of ₹2,928.25.
The futures added healthy open positions along with a sharp rise in share price, signalling a long build-up.
Option trading indicates that the stock can move within the range of ₹2,800-₹3,000.
Strategy: Traders can consider a bull-call spread strategy on TCS. This can be constructed by selling January expiry ₹3,000-call option and simultaneously buying the ₹2,900-call option.
This strategy will ensure an initial net outflow of ₹12,885, as these options closed with a premium of ₹114.25 and ₹71.30, respectively. Market lot is 300 shares per contract. Maximum loss will occur if TCS closes at or below ₹2,900 at expiry.
A maximum profit of ₹17,115 is possible in the strategy, if TCS moves and stays above ₹3,000.
We advise traders to exit the position if the loss mounts to ₹7,500 or at a full profit potential.
Follow-up: Hold ICICI Bank ₹490-strike put option.