Market Strategy

Stock Strategy: Consider short strangle on HDIL

K.S. Badri Narayanan | Updated on November 15, 2017 Published on May 26, 2012

HDIL: The long-term outlook remains negative for Housing Development and Infrastructure (HDIL). Only a close above Rs 144 will change the medium-term outlook positive for the stock. However, after the recent sell-off, the stock may move in a sideways. While the immediate resistance appears at Rs 83, it finds key support at Rs 57.5. We expect the stock to move in this range before making a clear direction.

While a close above Rs 83 can lift the stock to Rs 98 and even Rs 115, however, a close below the key support could trigger a fresh decline. In that event, the stock could easily dip below its all-time low level of Rs 52.15. A fibonacci projections points towards Rs 44 for the stock.

F&O pointers: The stock added fresh longs on Friday. Besides, it witnessed a healthy rollover of 31 per cent to June series. Option trading (June month), however, indicates that HDIL may move between Rs 60 and Rs 65.

Strategy: Traders could consider short strangle on HDIL using June series. This can be initiated by selling 75 call that closed at Rs 1.75 and 55 put, which closed at Rs 1.8.

Short strangle is best suited when one expects the underlying stock to move in a narrow range. Maximum profit is the premium collected, which works out to about Rs 7,000. On the other hand, loss could be unlimited if HDIL moves out of this range. Besides, writing option involves higher margin commitments. This strategy is suggested only for traders who can withstand wild swings and who can hold it for at least two weeks.

Loss will start mounting if HDIL closes above Rs 78 or below Rs 52. Market lot is 2,000 units a contract. Traders could also consider going long on HDIL. They can buy HDIL June futures for an initial target of Rs 69, with a stop loss at Rs 57.5 (The stop loss is for underlying equity on a closing day basis).

Lanco Infratech: The long-term outlook remains weak for Lanco Infratech (LITL). However, in the near-term, it may move in a narrow range. It finds immediate resistance at Rs 13.8 and support at Rs 10.5. We expect the stock to move in a narrow range around Rs 12.5.

F&O pointers: The LITL futures shed open interest position on Friday and witnessed a rollover 16 per cent. Options are not that active. Available cue suggests a narrow movement.

Strategy: Traders can consider short straddle (May series) on LITL using the 12.5-strike. The profit could be around Rs 12,000, considering the Friday's closing price, while the loss could be unlimited. This will happen if LITL closes below Rs 11.5 or above Rs 13.5.

Follow-up: Last week, we had advised short straddle on Suzlon and a short on India Cements. Traders could consider holding short straddle of Suzlon. Though India Cements moved on expected lines, it bounced back on Friday. Despite that, we are still bearish on the stock. Traders could hold on to the short position with a revised stop-loss of Rs 81.5.

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

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