Technical Analysis

Consider short strangle on Infosys

K.S. Badri Narayanan | Updated on December 17, 2011 Published on December 17, 2011


Infosys: Infosys is likely to move in a sideways range of Rs 2,550-2,850 in the short term. Only a break from this range will send a clear trend for the counter. A close above Rs 2,850 will lift the stock to Rs 2,974 initially and to Rs 3,105. On the other hand, a fall below Rs 2,500 will weaken the stock sharply to Rs 2,250.

F&O pointers: The stock witnessed short accumulation on Friday. The futures closed at a discount to the spot price. Cost of carry is negative, indicating that traders are not willing to carry over long positions, while option trading indicates a slightly positive bias — calls saw marginal unwinding of open interest, 2700 put witnessed heavy accumulation of open interest. This indicates a strong support for Infy at that level.

Strategy: Traders could consider a short strangle on Infosys. This can be initiated by selling 2,650 put and 2,850 call. They have closed at Rs 32.55 and Rs 14.50 respectively. Short strangle strategy is best suited when one considers the underlying stock is likely to move in a narrow range. While maximum profit is the premium collected, the loss could be unlimited if Infosys moves sharply in one direction i.e. either up or down. Besides, writing option involves high margin commitments. So this strategy is for traders who can afford to stomach high risks.

Traders can consider holding the position till expiry. Maximum profit will occur if Infosys settles between the strike prices at the time of expiry.

Gail India: After touching its all-time high in January this year, Gail India has been struggling to find its winning ways. The immediate-term outlook remains negative for Gail India. Only a close above Rs 467 will change the outlook to positive for the stock. The stock finds an immediate resistance at Rs 398 and the next at Rs 427.

Gail India finds a crucial support at Rs 343 and a close below that will drag it to Rs 283. Immediate support appears at Rs 366.

F&O pointers: Gail India futures ended with higher discount with respect to the spot close, signalling the existence of short positions. Options are not active on Gail India.

Strategy: Consider shorting Gail India Dec futures with tight stop loss at Rs 398 (closing day basis, spot price) for an initial target of Rs 343. Shift the stop-loss to Rs 366 if the stock dips below that level.

Follow-up: We advised a short straddle on Reliance Power 85-strike, expecting a narrow movement. However, the stock weakened sharply last week and pushed the position to out-of-money. Traders could exit from this. We had also recommended a short on BGR Energy. Though the stock opened last week on positive note, it could not sustain the gains and fell sharply as expected. Traders who entered the counter can hold on to the position with a revised stop loss of Rs 232 for the recommended target.

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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