Tata Motors’ stock (₹402.85) has been moving in a wide range between ₹370 and ₹480 in the last one year. The stock will trend only if it breaks out of this range. It faces an immediate resistance at ₹433 and the crucial one at ₹462. A close above the latter will change the long-term outlook to positive and can lift Tata Motors to ₹531 level. However, a close below ₹378 will change the short-term outlook to negative and has the potential to drag the stock towards ₹319 level.
F&O pointers: The counter witnessed a healthy rollover of 80 per cent to February series. Trading in option indicates that the stock could hover in the band between ₹380 and ₹420.
Strategy: Traders could consider a long strangle on Tata Motors. This can be initiated by buying ₹430-call and ₹370-put. As they closed with a premium of ₹7.85 and ₹4.95 respectively, it will cost investor an initial amount of ₹19,200.
The maximum loss one can suffer in this strategy is the premium paid initially and for that to happen, Tata Motors has to settle between ₹370 and ₹430. A huge profit potential is possible if the stock swings in a single direction — either up or down. A close above ₹443 or below ₹357 will start yielding profit for the position.
There are three crucial events that could trigger a big swing on the stock. One the Union Budget, which is on February 1; Tata Motors will disclose its January sales figure also on February 1; and the company will declare its quarterly results on February 5.
We advice traders to hold the position till February 10; and exit the position if the loss mounts to ₹10,000 or profit rises to ₹15,000.
Follow-up: As suggested hold ICICI Bank call position.
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