Market Strategy

Stock Strategy: Consider short strangle on JP Associates

K.S. Badri Narayanan | Updated on December 08, 2012 Published on December 08, 2012

JP Associates (Rs 104.8): Despite the strong recovery in recent times, the long-term outlook for JP Associates remains negative still it stays below Rs 125. The stock is currently ruling at crucial level. It finds immediate resistance at Rs 108 and support at Rs 96 and the crucial one at Rs 85. In the near-term, JP Associates is likely to see some moderation.

F&O pointers: The JP Associates December futures witnessed an accumulation of 6.44 lakh shares in open interest. However, most of the accumulation seems to be on the short side as both current month and January futures are ruling below the spot price. Option trading indicates Rs 95-100 is crucial level, where both put and call shed open interest position.

Strategy: Consider short strangle on JP Associates using 110 call and 95 put that have closed at Rs 1.95 and Rs 1.20 respectively. The market lot is 4,000 units/ contract.

As the maximum profit is the premium collected, we advise traders with high risk appetite to consider this strategy. Besides, the loss could be unlimited if JP Associates swings wildly in one direction (up or down). In other words, only a swing of more than 10 per cent from current levels in one direction will start pinching the position. Also, writing option involves higher margin commitments. Maximum profit occurs if JP Associates closes in the range. Hold this position for at least 2 weeks.

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

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