Future perfect: Consider put option for Eicher Motors

The outlook for Eicher Motors (₹22,631) is negative. The stock finds immediate resistance at ₹23,195 and a major one at ₹27,408. Only a close above the latter will change the short-term outlook to positive for Eicher Motors. The stock finds immediate support at ₹21,137 and the next one at ₹19,948. It is expected to remain in a range with a downward bias in the near future.

F&O pointers: The Eicher Motors March futures added 5,750 shares or 1.50 per cent on Friday, even as the stock’s underlying and futures displayed a divergent trend.

While the underlying fell about ₹7 to close at ₹ 22,612.35, the futures gained about ₹61 to close at ₹ 22,647.25. Interestingly, the premium value of both the put and call options have fallen. This signals that writers prefer to close their positions as they are not sure of the stock price direction.

Strategy: Traders can consider buying a put option of strike ₹22,500 on Eicher Motors. The put option closed with a premium of ₹438.80. As the market lot is 25, traders have to shell out ₹10,970 plus transaction and margin charges.

This will be the maximum loss one can suffer in this strategy and that will happen if Eicher Motors stays at the current levels or rises from the current level.The position will achieve the break-even point at ₹22,060 and a further fall will make it profitable. Hold the position if the premium value rises to ₹880 or falls to ₹175.

Follow-up: Book profits in Havells India recommended last week.

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