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Jaiprakash Associates (₹40.2): The long-term outlook remains negative for JP Associates as long as the stock trades below ₹75.
However, in the short term, we expect it to move in a slightly broader range of ₹30 to ₹60. The stock finds immediate support at ₹37.5 and a close below this level will drag it to ₹34.5 and ₹30.
F&O pointers: JP Associates February futures added about 14.5 lakh shares in open interest positions on Friday. In options, ₹45-call saw a heavy built-up in open interest positions.
This indicates that JP Associates may struggle to breach this level. The ₹40-put option also added heavy open interest positions on Friday, suggesting a support.
Strategy: Traders could consider a short strangle on JP Associates. Short strangle is a strategy involving simultaneous selling of call and put options.
This strategy is best suited when one expects the underlying stock to move in a narrow range.
Traders could consider selling ₹35-put option and ₹45-call option. They closed with a premium of ₹1.15 and ₹0.75 respectively.
This will entail an initial income of ₹15,200 , as the market lot is 8,000 a contract. The maximum profit in this strategy will be the initial income. This strategy is for traders who can bear the risk, as loss will be unlimited.
For maximum profit, JP Associates has to settle between the strike price at the time of expiry.
However, if the stock breaks free in any one of the directions, that is either up or down, then this strategy will result in a huge loss. Any close above ₹47 or below ₹37 will impact the position.
It is better to hold on to the strategy till the expiry, as traders could capture the full potential of time value. We advise traders to exit from this strategy, if the loss touches ₹3,500.
Follow-up: Last week, we had advised traders to consider a short-strangle strategy on Infosys. The stock has moved on expected lines. Traders can consider holding the position, as it was indicated last week.
Readers may mail their feedback or queries (on positions) to >blfuturesoptions@gmail.com.
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