Technical Analysis

Consider short straddle on LIC Housing Finance

KS Badri Narayanan | Updated on November 30, 2014 Published on November 30, 2014

The long-term outlook for LIC Housing Finance has turned positive after it moved past ₹326. The short-term outlook also remains bullish. But the stock will see some moderation in its uptrend, before resuming its rally. The stock finds immediate support at ₹405 and then at ₹384. We expect the stock to move in a range between ₹380 and ₹450 in the immediate term.

F&O pointers: The counter witnessed unwinding of long positions on Friday. Option trading indicates a range ₹400 and ₹440 for LIC Housing Finance.

Strategy: Traders could consider a short strangle on LIC Housing Finance. This can be initiated by selling ₹460 call and ₹380 put. They closed with a premium of ₹4.25 and ₹1.85 respectively. The strategy will result in an inflow of ₹6,100, as the market lot is 1,000 shares a contract. The maximum profit will be the initial inflow, for which LIC Housing Finance has to settle between ₹460 and ₹380 at the time of expiry.

However, the loss could be unlimited if LIC Housing Finance moves past ₹466 or below ₹374. Traders can consider exiting the position if the loss mounts to ₹3,250.

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