Market Strategy

Stock Strategy: Consider going short on Educomp Solutions futures

K. S. Badri Narayanan | Updated on May 05, 2012 Published on May 05, 2012

Educomp Solutions (Rs 178): The stock has been in the grips of bear for quite a long time. It is unlikely to see any relaxation from bears. The stock is close to its all-time low of Rs 162 and is on the verge of breaking below that level. In that event, the Educomp Solutions stock could reach Rs 147. Immediate resistance appears at Rs 192 and only a close above Rs 267 will arrest the downward bias in the stock. However, that is unlikely to happen anytime soon.

F&O Pointers: The Educomp Solutions May Futures accumulated fresh short positions on Friday. Options are not that active. However, cue available from Option trading suggests negative bias.

Strategy: Consider going short on Educomp May Futures with a tight stop-loss at Rs 192 (spot price on a closing day basis) for a target of Rs 147. Shift the stop-loss to Rs 175 once it dips below that level. Market lot of Educomp Solution is 1,000.

Alternatively, traders can consider writing 180 May Call, which closed around Rs 9 on Friday. Maximum profit in the strategy is the premium collected (i.e. 9 * 1,000 market lot excluding brokerages and charges), while loss could be unlimited if Educomp Solutions recovers sharply. Besides, writing an Option involves margin commitments. So this strategy is only for traders who can afford to bear those risks. Hold this position till expiry or till the Option premium erodes sharply.

ITC (Rs 238): The long-term positive outlook remains intact for ITC. However, after the recent sharp rally, ITC could face some resistance in the immediate-term. One more conclusive close below Rs 242 can take the stock towards its next support level at Rs 224. A close below Rs 202 will change the outlook to negative for ITC. If the stock manages to hold on to Rs 225 level, then it can touch Rs 275-280.

F&O pointers: The ITC May Futures witnessed heavy unwinding of long positions on Friday. This indicates that traders are reluctant to carry over their long positions, and instead booked profits. Option trading also indicates a negative bias as 230 Put saw unwinding of open interest.

Strategy: Consider shorting ITC with a stop-loss at Rs 242. Stop-loss could be adjusted to Rs 237 once it dips below that level. Traders could consider exiting from ITC, if it reaches Rs 224. Market lot for ITC is 1000.

Alternatively, traders could also consider selling 240 Call, which closed at around Rs 6 on Friday. While the maximum profit is the premium collected (Rs 6 * 1000), the loss could be unlimited if ITC  breaches Rs 240. As mentioned above, this strategy is only for traders who can bear the risk. Consider holding it for at least two weeks.

Follow-up: Last week we advised a short on Coal India for an initial target of Rs 308. As expected, Coal India moved downwards. Traders could consider holding the position with a revised stop-loss of Rs 331.

We also recommended a sell on SAIL with a stiff target of Rs 73. The stock is currently hovering around Rs 94. As mentioned, adjust the stop-loss to Rs 92, once it dips below that level. We also recommended a sell on 100 Call option. Traders could consider holding it for one more week.

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

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