Strategy to benefit from RIL result

Reliance Industries (Rs 818.9): While the immediate outlook remains neutral for Reliance Industries, the long-term outlook remains negative for the stock as long as it stays below Rs 1,105. It faces immediate resistance at Rs 860 and has support at Rs 770. A close above the aforesaid resistance will take the stock towards Rs 920 and the close below the support will drag it to Rs 680.

F&O pointers: Reliance Industries witnessed unwinding of 1.56 lakh shares in open interest positions on Friday along with fall in share price. This indicates that traders turned cautious and are not willing to carry over their positions. Concentration of open position in 800 put and 860 call indicates that it is likely to move in the range. Market lot is 500.

Strategy: The company has scheduled to announce its Q2 results on Monday. The company generally announces the results after trading hours only. The stock could swing wildly in reaction to the numbers. Traders could consider a straddle on Reliance Industries to benefit from the swing. This can be initiated by selling and buying 820-strike call and put options. They closed at Rs 19 and Rs 17 respectively.

Straddles are a good strategy to pursue if an investor believes that the stock's price will move significantly, but is unsure about its swing direction. The stock price must move significantly if the investor is to make a profit. While profits are unlimited, the loss is limited to the extent of the premium paid, which works out to about Rs 18,000. Maximum profit occurs if the underlying of the stock moves away from the strike price. On the other hand, loss occurs if Reliance Industries settles around the strike price. Consider this strategy for at least one week and review it later.

Follow-up: Last week we had recommended short strangle on Tata Motors DVR. The position is marginally in the positive considering the option prices. As advised traders could consider holding it till the expiry.



Note: 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.

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