Portfolio

Negative bias in Tata Steel, Bank of India

K.S. Badri Narayanan | Updated on March 12, 2011 Published on March 12, 2011


Tata Steel (Rs 583.9): The outlook turned bearish for Tata Steel, after last week's fall.

The stock finds crucial resistance at Rs 644 and as long it rules below that level, the outlook remains negative. One more conclusive close below the crucial support level of Rs 585 could drag the stock towards Rs 535 and even to Rs 480.

F&O pointers: The Tata Steel futures added fresh short position on Friday. Option trading also indicates a negative bias as calls witnessed heavy accumulation of open interest. On the other hand, puts also witnessed unwinding of open interest.

Strategy: Traders could consider going short on Tata Steel futures (market lot is 500) keeping the stop-loss at Rs 600 for an initial target of Rs 535.

If the stock opens on negative note, shift the stop-loss to Rs 585.

Traders could also consider buying 580 put, which closed on Friday at Rs 17.

Trades with a penchant of risk appetite can also consider selling Tata Steel 600 call that closed on Friday at Rs 12. While the maximum profit in this strategy is the premium collected, the loss could be unlimited if Tata Steel stock moves up. Besides, this strategy requires higher margin commitments.

Bank of India (Rs 457): The stock has been moving in a range of Rs 395-495 in the last four months.

A break from this range could set a clear trend for Bank of India. We expect the stock to pursue in the negative direction in the short-term. Bank of India finds an immediate resistance Rs 469 and support at Rs 417.

A dip below Rs 417 has the potential to weaken the stock towards Rs 382 and even to Rs 339. Only a close above Rs 513 would change the outlook positive for Bank of India.

F&O pointers: The Bank of India March futures (market lot is 500) closed Rs 457 on Friday and witnessed a marginal accumulation of open interest positions. Options are not active to discern any view.

Strategy: Traders can consider going short on Bank of India with a stop-loss at Rs 469 for an initial target of Rs 382.

Follow-up: Last week, we had advised three strategies on IFCI – Short on IFCI futures; short straddle using 50-strike; and writing 55 call. While the first strategy could have triggered the stop-loss, the other two are ruling at-the-money.

Traders can continue to hold on to the strategies. We had also recommended short on Voltas and it moved on expected lines. Traders can hold it with revised stop-loss at Rs 154.

Feedback or queries (on positions) may be sent to >f&o@thehindu.co.in by Sunday noon. Replies will be published on Monday.

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