Technical Analysis

Stock Strategy - Outlook appears weak for United Spirits

K. S. Badri Narayanan | Updated on October 22, 2011 Published on October 22, 2011




United Spirits (Rs 855): The longand short-term outlook remains week for United Spirits. Only a close above Rs 1,054 would reverse the long-term negative outlook of the stock. For the short term, United Spirits finds resistance at Rs 918 and Rs 965. It finds support at Rs 795 and the next at Rs 734, which is a major support. A close below that could trigger a fresh sell-off.



F&O pointers: The United Spirits futures witnessed a rollover of about 30 per cent, which is quite decent. The rollover seems to be on the long side, as November futures quoted at slightly higher price of Rs 862.15 as against the October value of Rs 858 with respect to the spot close of Rs 855.45. Options are not active.



Strategy: Traders could consider going short on United Spirits November futures with a stop-loss at Rs 918 for an initial target of Rs 795. Since the stop-loss is at a distance, this strategy is for traders, who have the ability to take risk. Market lot of United Spirits is 250.



NTPC (Rs 170): The long-term outlook remains neutral for NTPC, in the short to medium-term the stock is likely to move in a range between Rs 165 and Rs 190. NTPC could set a clear trend only if it breaks from this band. A conclusive close above Rs 190 has the potential to lift the stock towards Rs 215 while a close below Rs 165 could weaken the stock to Rs 152.



F&O pointers: NTPC witnessed a strong rollover of open positions to November series; the rollover stood at 74 per cent. Options are not that active



Strategy: Traders could consider short-straddle on NTPC using November options. This can be initiated by selling Rs 170 call and put. They closed at Rs 5.55 and Rs 5.30 respectively. These options are not that active, however, we expect activity to pick up nearing settlement.



This would result in a net premium collection of about Rs 11 a contract. Market lot of NTPC is 2,000.



Short straddle strategy is best suited when one considers that the underlying equity is likely to move in a narrow range till expiry. While the maximum profit is the premium collected, loss could be unlimited if NTPC swings in one direction.



Maximum profit occurs if NTPC closes around Rs 170 at the time of expiry.



Writing options involve higher margin commitments. So this strategy is best suited for traders, who have the wherewithal to withstand the swings.



Follow-up: We had recommended a short on Tata Steel and short strangle on JP Associates using 75 call and 65 put. Traders could consider book profits on JP Associates. Tata Steel is behaving on expected lines. Traders could consider holding or rollover the position till the target is achieved with stop-loss mentioned.



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.



Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get





This article is closed for comments.
Please Email the Editor