As the Q2 FY24 earnings season has started, many companies have lined up to declare their results. HDFC Bank (NS:) is all set to announce its numbers on 15 October 2023 and there is a bullish strategy that traders can explore prior to the earnings.

The counter is already beaten down due to the management’s guidance of margin pressures on NIMs after the merger with HDFC and therefore I guess even a slightly bad report won’t disappoint the markets. Also, the stock has formed a bullish engulfing candlestick pattern on the daily chart (on 4 October 2023) which depicts a probable start of an uptrend.

This strategy is called a Jad Lizard.

In this, the trader needs to go short on the 1530 PE (at 15.25) and 1570 CE (at 13.85), while at the same time, long on 1580 CE (at 10.9). So this is a 3-legged strategy with 2 short and 1 long strikes.

The 1530 PE is a naked short, meaning there is an unlimited risk on the downside, after the breakeven level of INR 1,511. If the stock stays above the breakeven by the current monthly expiry, traders will end up in a profit. So the risk is only on the downside, not on the upside.

The max profit is between the range of INR 1,530 and INR 1,570, which is INR 10,010 per lot. Because there is a long 1580 CE, the unlimited risk of short 1570 CE is completely hedged. The profit will reduce to INR 4,510 per lot after the level of INR 1,580.

The margin required to deploy this strategy is around INR 1.6L which gives a max profit potential of 6% for the next 15 days. Because the earnings date will fall in the middle of the trade, traders with a low-risk appetite should steer clear of this strategy.

Disclosure: I have multiple options positions in HDFC Bank.

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