Cash-in on Coal India’s range-bound movements

K.S. Badri Narayanan | Updated on December 14, 2013 Published on December 14, 2013

Coal India (Rs 283): The immediate-term outlook for Coal India is neutral. The stock is expected to move in a narrow range between Rs 260 and Rs 310. Only a close above Rs 330 will change the medium-term outlook positive and the stock could touch Rs 355.

A close below Rs 260, however, may trigger fresh selling. This will drag the stock to Rs 225.

F&O pointers: The Coal India futures added over 8.4 lakh shares in open interest on Friday. Shedding open interest in Rs 260-strike put indicates a crucial support for the stock at that level. Similarly, Coal India faces strong resistance at Rs 290, as indicated by the open interest, which is the highest for Rs 290-call.

Strategy: Traders can consider a short straddle strategy on Coal India. This can be initiated by selling both call and put of Rs 280-strike which closed at Rs 9.8 and Rs 4.5 respectively.

Short straddle strategy is best suited when one expects the underlying stock to move in a narrow range. Maximum profit in this strategy is the premium collected, i.e., about Rs 14,000 (Rs 14.3 * 1,000), while the loss could be unlimited. Loss will occur if Coal India moves sharply in either directions. A close below Rs 265 or above Rs 295 will make the position unprofitable. . Hold the position till expiry for maximum profit.

Traders could consider closing the position, if the loss hits Rs 4,000. Writing option also involves higher margin commitments.

Follow-up: Last week, we advised a long on Adani Power, for which stop-loss would have got triggered.

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

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