Buy Infosys’ deep out-of-the-money put

Infosys (Rs 3,015.45): The long-term outlook remains positive for Infosys.

F&O pointers: The stock shed open interest on Friday. Both puts and calls accumulated open interest, indicating expectation of wild swings. However, the accumulation in put side is much higher indicating a limited downside.

Event: Infosys will announce its September quarter financial performance on October 11.

Key triggers: a) High expectations: Analysts are expecting robust sales and profit growth for Infosys due to the steep decline in the rupee against the dollar and also a pick-up in outsourcing demand which means that the market has already priced-in a ‘healthy’ performance. So, if the result fails to meet street expectations, the stock will see selling pressure; b) US shutdown: Though experts feel that software majors such as TCS and Infy that have Federal and State government contracts in the US are unlikely to suffer any major loss of business due to the US government shutdown, continuing standoff will definitely hurt the business of these firms; c) Domestic scenario is yet to see a pick-up.

Key risk: However, if Infosys declares an extraordinary performance and a stellar outlook, then the stock will rise vertically. On the other hand, if the company manages to satisfy market participants, the stock may hover around current level.

Strategy: Considering the above scenario, buying deep out-of-the money put is worth the risk. Traders could consider 2,600-put that closed at Rs 49 on Friday. The maximum loss is the premium paid, which works out to about Rs 6,250 in this strategy. A stop-loss of Rs 20 can be placed on the put, after the result is announced.

Follow-up: Last week, we recommended a bear-call strategy on Indiabulls Real Estate. Traders can consider holding the position till expiry.

( Note: Feedback or queries (on positions) may be sent to > blfuturesoptions@gmail.com by Sunday noon. Replies will be published on Monday.)

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