Future Perfect. Consider short strangle on Ashok Leyland

The shares of Ashok Leyland (₹89.6) trade at a crucial level. The stock can face key resistance at ₹100.50 and a major one at ₹121. A close above the latter will confirm the long-term bullish view on the stock. On the other hand, it finds immediate support at ₹85, and a close below ₹78.50 can trigger a fresh downfall. We expect Ashok Leyland to move in a range till it finds a clear direction.

F&O pointers: Despite remaining firm on Friday, Ashok Leyland May futures witnessed unwinding of open positions; it shed 7.36 lakh shares (or over one per cent). However, open positions built up steadily last week. Option trading indicates that Ashok Leyland can move in the ₹80-110 band.

Strategy: Traders can consider a short strangle strategy on Ashok Leyland. This can be constructed by simultaneously selling the ₹82.50-strike put and the ₹102.50-strike call, which closed with a premium of ₹1.85 and ₹1.05 respectively.

This would entail an inflow of ₹11,600 to traders, which would be the maximum profit one can receive from this strategy. For maximum profit, Ashok Leyland stock has to trade between ₹82.50 and ₹102.50.

On the other hand, the potential for loss would be high if Ashok Leyland makes a sharp movement in any one of the directions — up or down. A close below ₹79.6 or above ₹105.4 will start pinching traders.

We advice traders to hold on to the position for at least three weeks. Risk-averse traders can stay away from taking a position, as wild swings could result in a huge loss.

Follow-up: Hold positions in SBI.

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