Market Strategy

Stock Strategy: Consider short straddle on Tata Motors

K.S. Badri Narayanan | Updated on January 26, 2013 Published on January 26, 2013

Tata Motors: The stock is likely to move in a narrow range with the settlement round the corner for the January series and ahead of the crucial RBI meeting of monetary policy on January 29, we expect the heavyweight to move in a narrow range. Technically also, the stock is expected to move in a range before taking a clear direction.

In the short-term, it finds support at Rs 273 and the resistance at Rs 314. Only a breach of this range will set a clear direction for Tata Motors. Though it did try to break out on the higher side, it failed to sustain the momentum.

F&O pointers: The Tata Motors futures witnessed a rollover of 25 per cent to next series. Option trading indicates strong support around Rs 300. But heavy accumulation of open interest in Rs 320 call indicates resistance too. Next month series options are that not active.

Strategy: As we expect the stock to move in a narrow range, consider short straddle on Tata Motors. This can be initiated using Rs 300-strike by selling both call and put that ended at Rs 5.45 and Rs 4.9 respectively on Friday. While the maximum profit is the premium collected, the loss could be unlimited if Tata Motors swings wildly.

The position will remain in positive zone if Tata Motors trade in Rs 290-310 range. Position will turn negative, once it goes out of the range. Maximum profit occurs, if Tata Motors settles at Rs 300.

This strategy is for traders who can afford to take risk. Hold it till expiry.

( Note: Feedback or queries (on positions) may be sent to > by Sunday noon. Replies will be published on Monday.)

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