Short strangle on ICICI Bank

The outlook remains neutral for ICICI Bank (₹319.4). We expect the stock to move in the ₹260-360 range in the medium term. The stock finds an immediate support at ₹298 and resistance at ₹345. A close above the latter could propel ICICI Bank to ₹410. But if it dips below ₹298, it can head towards ₹262.

F&O pointers: ICICI Bank October futures added a healthy open interest on Friday. It added almost 45.23 lakh shares. Option trading indicates that the stock could move in a range of ₹280-340.

Events: The private bank will declare its Q2 results on October 26, while this month’s contracts will expire on October 25.

Strategy: Traders could consider a short strangle on ICICI Bank. This can be initiated by selling ₹350-strike call and ₹270-put. They closed with a premium of ₹1.40 and ₹0.90, respectively.

That means, traders will receive ₹6,462.5, which is the maximum profit one can earn from this strategy. For that to happen, ICICI Bank has to settle between the strike price — between ₹270 and ₹350 — at the time of expiry.

However, loss potentials will be very high if ICICI Bank moves either up or down.

So, this strategy is strictly for traders who can take high risks and have deep pockets to weather volatility.

We advise traders to exit the position if the loss mounts to ₹5,000. Hold the position till expiry.

 

Follow-up: Book profit on Gail India.

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