Stock strategy: Consider short strangle on IDFC

IDFC (Rs 122): The stock closed near its key support level, despite a strong sell-off across the market. The outlook remains neutral for IDFC. We expect IDFC to move in a range of Rs 120-130. However, a close below Rs 122 -123 with substantial volumes could weaken the stock towards Rs 100-98 levels.

Only a close above Rs 158 would change the outlook to positive for the stock. It now finds a strong resistance at Rs 130 and the next at Rs 146.

F&O pointers: The IDFC August futures closed at Rs 122 on par with the spot close. It shed over 11 lakh shares in open interest on Friday.

Option trading indicates a mixed view, as 120 put shed open interest even as 110-strike added shares.

Similarly, 140 calls shed open interest and 130 strike added open positions. This indicates that the stock could move in 120-140 range.

Strategy: Consider going long on IDFC August futures with a tight stop-loss at Rs 120 (spot price on a closing day basis) for an initial target of Rs 130. Market lot of IDFC is 2,000.

Alternatively, traders can consider a short strangle on IDFC.

This is can be initiated by selling 140 August call and 120 August put.

The respective options closed Friday at Rs 1.45 and Rs 0.75.

This makes the total inflow from the spread of about Rs 2 per contract. Strangle is best suited if one expects the underlying stock to move in a narrow range.

While loss could be unlimited in this strategy, the maximum profit is the premium collected (here Rs 4,000 - Rs 2 * 2000). Hold the position for at least two weeks.

Maximum profit occurs when the stock rules between the strike prices while unlimited loss could happen if the stock moves violently in a single direction.

Titan: The stock has been on an uptrend for more than two years. It now appears it could face some strong resistance.

The immediate resistance appears at Rs 230 while the support at Rs 205. A close below Rs 205 could drag Titan towards Rs 185 initially and then to Rs 165.

F&O pointers: The Titan August futures witnessed unwinding of long positions along with a fall in share price. Options on Titan are not that active.

Strategy: Consider shorting Titan Industries with a tight stop-loss at Rs 230 for an initial target of Rs 185. Stop-loss can be shifted to Rs 205, if Titan closes below that level. Market lot is 2,500 shares a contract.

Follow-up: Last week, we had advised traders to consider short on Reliance Industries and NMDC. We had also advised selling Reliance 840 call. While strategy on Reliance would have yielded positive results, stop-loss would have got triggered for NMDC.

Traders can continue to hold on to Reliance futures strategy.

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.

COMMENT NOW