Consider short-strangle on HPCL

The long-term positive outlook for the stock of Hindustan Petroleum Corporation (HPCL) will remain bullish, as long as it stays above ₹198, while in the short term, it may move in the ₹210-290 range with a positive bias. The stock finds immediate support at ₹225 and resistance at ₹256. While a close below ₹225 could weaken it to its key support level, a close above ₹256 has the potential to lift the stock to ₹315.

F&O pointers: HPCL January futures witnessed unwinding of open interests on Friday along with fall in share price, indicating selling pressure. Open interest, in fact, has fallen from 1.50 crore shares on January 10 to the current level of about 1.35 crore shares. Option trading indicates that ₹240 and ₹260 are crucial levels.

Strategy: Traders can consider short-strangle on HPCL. This can be done by selling ₹255-call and ₹220-put. These options closed with a premium of ₹1.40 and ₹0.70 respectively. Traders will earn ₹4,620 from this strategy; that will be the maximum profit one can earn. For maximum profit to occur, HPCL has to settle between ₹255 and ₹220 at expiry.

However, the potential for loss are high, if HPCL swings wildly in one direction — up or down. A close below ₹217.90 or above ₹257.10 will hurt the position. This strategy is for traders who can afford to withstand wild swings. Others can stay away, as margin commitments are high.

Follow-up: Book profit in GAIL India.

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