Consider short strangle on YES Bank

YES Bank (Rs 342.9): The immediate outlook for the stock is neutral, with a negative bias. The stock is likely to move in the Rs 270-Rs 385 range in the medium term. It finds immediate support at Rs 325 and the next at Rs 298. A close below Rs 270 will make the outlook negative. The stock finds immediate resistance at Rs 365. A close above Rs 425 will trigger a fresh rally to new highs.

F&O pointers: YES Bank futures added fresh short positions on Friday. Option trading indicates a negative bias, as calls added open interest, signalling the strong emergence of call writers. Heavy concentration of open interest at a Rs 380-strike call indicates YES Bank may find it difficult to breach Rs 380.

Strategy: Investors could consider a short strangle strategy. This strategy is best-suited when one expects range-bound movement in the underlying stock. Here, traders could consider selling the Rs 380-strike call and Rs 300-strike put options. This will entail an initial outflow of approximately Rs 5,650, as the options closed at Rs 3.3 and Rs 2.35, respectively. The market lot is Rs 1,000. As the maximum profit is the premium collected, traders with high risk appetite can consider this strategy. The loss could be unlimited if YES Bank swings wildly. Traders should also bear in mind that the bank will be declaring its Q3 results on Wednesday. A close below Rs 295 or above Rs 385 will affect the position. If YES Bank closes above Rs 365 or below Rs 315, the position can be squared off. It may be noted that writing (selling) options involves higher margin commitments. Maximum profit occurs if YES Bank closes between the strike price of the options sold.

Follow-up: Last week, we had advised a short straddle on Crompton Greaves. Traders can continue to hold the position.



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

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