Consider going short on SBI

State Bank of India : The immediate and near-term outlook turned negative for State Bank of India, despite the small pullback on Friday.

The counter now finds an immediate resistance at Rs 2,765 while a crucial resistance is placed at 3,175. Only a close above Rs 3,175 would change the outlook to positive. The immediate support for State Bank of India appears at Rs 2,525. A conclusive close below this level could weaken the stock to Rs 2,340 initially and then to Rs 1,940. It could even go down to Rs 1,785.

SBI is declaring its FY-11 financial performance on May 17. We expect the stock to move in a narrow range with a negative bias ahead of the announcement.

F&O pointers: State Bank of India witnessed unwinding of long positions on Friday, despite it posted small gains. This shows a lack of confidence from traders on SBI. Option trading presents a cautious view, as both near-money calls and puts saw shedding of open interest.

Strategy: Traders can consider going short on State Bank of India (market lot: 125 shares) with a strict stop loss at Rs 2,765 for an initial target of Rs 2,525. If the stock moves on expected lines, adjust the stop loss suitably to protect profits.

Alternatively, traders can consider writing 2,800 call that closed Friday with a premium of Rs 26. While the maximum profit in this strategy is the premium collected, the loss could be unlimited if SBI surges vigorously. Besides, writing options involve margin commitment. This strategy therefore is best for high-risk appetite traders only.

Tata Motors : The outlook remains sideways for Tata Motors during the short term. The stock is likely to move in a range of Rs 1,320-1,020. The immediate support and resistance appear at Rs 1,153 and Rs 1,272 respectively.

F&O pointers: Tata Motors futures (market lot 250) witnessed a modest accumulation of open interest on Friday on the long side. Option trading also indicates a positive bias, as calls witnessed unwinding of open interest while puts saw healthy accumulation.

Strategy: Traders can consider short strangle using 1250 call and 1150 put, which closed at Rs 21 and Rs 17 respectively. Short strangle involves selling (writing) of options. While the maximum profit is premium collected, the loss could be unlimited if Tata Motors makes a significant unidirectional move (either up or down). Hold this strategy till expiry. This strategy too is for traders who can afford to take a risk.

Follow-up: Last week we had advised traders to go short on Titan Industries. Though it moved on expected lines, Titan Industries opened with some freak quotes last Monday. Traders can consider holding it with the strict stop loss mentioned. The alternative strategy of writing call 4100 shed considerable premium during last week.

We had also advised traders to consider short straddle on JP Associates using 90-strike. The position closed at the same level. As advised, traders can hold on to this strategy for slightly longer period.

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

Note: The analysis and opinion expressed in this column are based on F&O data available at this point of time and on technical analysis based on past price movements. There is risk of loss in trading.

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