Market Strategy

Stock Strategy: Negative bias seen on Coal India, SAIL

K.S. Badri Narayanan | Updated on April 28, 2012 Published on April 28, 2012

Coal India: After recent attempts to climb high, the stock of Coal India failed to sustain the movement. It now finds support at Rs 331 and the crucial one at Rs 308-310. A fall below the crucial support level would change the long-term outlook for the stock to negative. In that event, it could create a new low breaching its all-time low of Rs 289.

The stock finds immediate resistance at Rs 357 and next one at Rs 380. Only a close above Rs 413 would change the outlook to positive for Coal India.

F&O pointers: The stock witnessed unwinding of positions on Friday along with fall in share price. Rollover of open interest is just 55 per cent as against three-month average of 77 per cent.  These things signal a negative for Coal India as traders are not willing to bet on the counter. Options are not that active. The little cues available from option trading indicate a neutral view as both calls and puts added open interests.

Strategy: Consider going short on Coal India May Futures with a tight stop-loss at Rs 357 (spot price on a closing day basis) for an initial target of Rs 308. Shift the stop-loss to Rs 331 once it dips below that level. Market lot of Coal India is 1,000.

Alternatively, consider writing 360 April Call, which closed at Rs 8.3 on Saturday. Maximum profit in the strategy is the premium collected (i.e. 8.3 multiplied by market lot 1,000, excluding brokerages and charges), while loss could be unlimited if Coal India surges sharply. Besides, writing a Call involves margin commitments. So, this strategy is for traders who can afford to bear those risks. Hold this position till expiry.

SAIL: The outlook remains negative for SAIL. It is ruling near its crucial support level. Another conclusive close below Rs 96 will ensure a fresh downfall for the stock. In that event, SAIL could reach Rs 73. SAIL finds immediate resistance at Rs 108 and after that at Rs 129.

F&O pointers: The SAIL Futures witnessed fresh accumulation of short positions on Friday. It also witnessed higher rollover of open interest to May series. About 88 per cent of the position got rolled over against the three-month average of 75 per cent, but most of it was on the short side. Options are not that active. However, the little cues available suggest negative bias, as calls witnessed higher addition of open interests.

Strategy: Consider shorting SAIL with a stop-loss at Rs 96. Stop-loss could be adjusted to Rs 92 once it dips below that level. Traders could aim for a target of Rs 73. Market lot for SAIL is 2,000.

Alternatively, traders can consider selling 100 Call, which closed at Rs 2.75 on Saturday. While the maximum profit is the premium collected (Rs 2.75 * 2000), the loss could be unlimited if SAIL breaches Rs 100. As mentioned above, this strategy is for traders who can bear the risk. Consider holding it for at least two weeks.

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

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