Technical Analysis

Bear call on ITC

KS Badri Narayanan | Updated on March 12, 2018 Published on December 07, 2014

The long-term outlook remains positive as long as the stock stays above ₹348. However, we expect the stock to move within a narrow range before pursuing a clear direction. It finds immediate support at ₹372. As long as the stock trades above this level, it can target ₹435.

F&O pointers: The counter witnessed unwinding of open positions on Friday despite gaining almost 2 per cent. This indicates that traders are not willing to rollover their positions and would rather book profits. Option trading, however, indicates a positive bias. ITC ₹400-call options also added heavy open interest, signalling resistance at this level.

Strategy: Traders can consider a bear call strategy on ITC. This can be executed by selling the ITC ₹370 call and simultaneously buying the ITC ₹400 call. This strategy will yield an inflow of ₹19,650, as the options closed at ₹24.55 and ₹4.90, respectively.

To yield the maximum profit, ITC has to settle at or below ₹370 at the time of expiry.

However, if ITC closes at or above ₹400, the position will pinch traders. In such a scenario, the maximum loss could be ₹10,350.

Risk-averse traders can consider exiting the position if the loss mounts to ₹5,500.

Follow-up: Last week, we advised a short-strangle strategy on LIC Housing Finance. Traders can consider holding the position, which is currently in-the-money.

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