Market Strategy

Ride on HDIL's volatility through short strangle

K.S. Badri Narayanan | Updated on March 12, 2018 Published on February 02, 2013

HDIL (Rs 78): The stock tumbled sharply last month. HDIL (Housing Development & Infrastructure Ltd) now finds crucial support at Rs 66.20 and a close below that has the potential to take the stock further lower. The current historic low for the stock is Rs 52, which it had touched during December 2011. The stock finds immediate resistance at Rs 91.5 and support at Rs 72.5. We expect the stock to move broadly in this range before taking a clear direction. A close above Rs 91.5 could lift the stock towards Rs 106.50 where it could face another resistance.

F&O pointers: The counter witnessed a rollover of 73 per cent, which is much lower than its industry as well as overall market wide average. This indicates an elimination of weak hands from the counter. On Friday, it added 52.76 lakh shares in open interest, signalling some fresh accumulation. Option trading indicates that level 80 would be tough to breach.

Strategy: Traders can benefit from short strangle strategy, which can be initiated by selling 90 call and 65 put. They closed at Rs 2.25 and Rs 1.90. While the maximum profit is the premium collected, loss could be unlimited if HDIL swings wildly (as happened recently) in one direction. Maximum profit occurs if HDIL settles between the strike prices.

Your position will turn negative if HDIL moves below Rs 60 or above Rs 95. In other words, a swing of over 20 per cent only will fetch negative result for this position.

Consider holding this position at least for two weeks. This strategy is for traders who can afford to take risk, as HDIL is a high beta counter.

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

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