Portfolio

Reliance Power likely to move in narrow range

K.S. Badri Narayanan | Updated on March 12, 2018 Published on December 10, 2011


Reliance Power (Rs 85): The stock price of Reliance Power has been moving in a range of Rs 75-135 since February. It is unlikely to break this range anytime soon.  It finds an immediate resistance at Rs 96 and the next one at Rs 116. Support for Reliance Power is at Rs 78.

F&O pointers: The stock witnessed unwinding of long positions on Friday despite gaining 1.6 per cent. This indicates that traders may not be inclined to carry over their open positions. While options are not that active, the little cues that are available suggest that the stock price could hover around Rs 85 — that strike put shed open position.

Strategy: Consider short straddle on Reliance Power. This can be constructed by using 85-strike. The 85 call closed at Rs 6.25 and the put at Rs 3. Short straddle is best suited when one expects the stock to move in a narrow range. While maximum profit is the premium collected in this strategy, the loss could be unlimited if Reliance Power swings wildly in either direction. Besides, writing option involves margin commitments. So this strategy is only for traders who can afford to bear those risks. As market lot is 2,000 units, the maximum profit could be about Rs 18,000. This strategy is for a slightly longer duration. Traders can consider holding the position till expiry. Maximum profit occurs if Reliance Power settles this series at Rs 85.

BGR Energy (Rs 237): The long-term out look remains negative for BGR Energy Systems. It fell sharply on Friday and is currently ruling near its 52-week low level.  

While the immediate resistance appears at Rs 264, it finds support at Rs 187. The stock price appears to be heading towards the support. A close below the support could even drag BGR Energy to Rs 148.

 

F&O pointers: The BGR Energy December futures added fresh shorts on Friday. The futures closed at a premium with respect to the spot close of Rs 236. Options are not active.

Strategy: Traders can consider going short on BGR Energy, keeping the stop loss at Rs 264 for an initial target of Rs 187. Stop loss can be shifted to Rs 232 if the stock opens on a negative note and closes below that level on Monday.

Follow-up: We had recommended a short strangle on Bharti Airtel and a long on IDFC. Strategy on Bharti Airtel would have resulted in huge losses as the stock breached important support levels. While IDFC moved on expected lines initially, it changed direction in the later part of the week in line with the general movement of the market. Traders can consider holding the positions.

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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