Technical Analysis

NTPC, IFCI on weak footing

K.S. Badri Narayanan | Updated on November 15, 2017 Published on January 28, 2012

NTPC (Rs 175): Despite recent recovery, the outlook remains neutral for NTPC.

The stock is expected to move in a range of Rs 190 and Rs 158. While immediate resistance appears at Rs 181, it has support at Rs 166.

While only a close above Rs 215 would change the outlook to positive for the stock, a close below Rs 158 would trigger fresh downfall.

F&O pointers: NTPC added fresh short positions in Friday's trade.

The underlying stock is ruling at a discount (backwardation), indicating the existence of short positions.

Part of the discount is also due to interim dividend (35 per cent), announced by the company, for which the record date is January 31.

Strategy: Traders can set a short-strangle on NTPC using 160 put and 190 call.

Short-strangle strategy is best suited when one expects limited movement in the underlying stock.

While maximum profit would be limited to the premium collected in this strategy, the loss could be unlimited if NTPC swings violently in one of direction i.e. up or down.

NTPC 160 put closed at Rs 1.80 while the 190 call ended at Rs 0.45. Since the market lot is 2,000 shares, the spread would entail a net inflow of about Rs 4,000.

Traders should take note that writing options involves high margin commitments.

The strategy therefore is only for those who can stomach high risks.

We advise traders to hold this position till expiry. Maximum profit will occur if NTPC settles between the strike prices at the time of expiry.

IFCI (Rs 28.05): This is one of the stocks that has scored handsome gains since New Year.

However, it now appears that IFCI is heading towards its resistance zone.

The stock finds immediate resistance at Rs 30 and support at Rs 24. Next resistance appears at Rs 33.

F&O pointers: IFCI accumulated fresh long positions on Friday.

Option trading indicates narrow movement as both calls and puts saw a sharp surge in open interest positions.

Strategy: Traders can short IFCI February futures with a stop-loss at Rs 31 for an initial target of Rs 24.

Traders with a high-risk appetite can keep the stop-loss even at Rs 33.

Since the market lot is 8,000 shares, this strategy is for traders who are willing to take high risks.

Follow-up: Last week we had recommended traders to short Hindustan Unilever and United Phosphorus.

Though Hindustan Unilever moved on expected lines, the stop-loss would have got triggered on day one itself.

While United Phosphorus moved on expected lines during the earlier part of the week, it surged sharply on the last two trading days.

Traders can hold their positions in the counter with a stop loss mentioned (Rs 152).

Feedback or queries (on positions) may be sent to >f&

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