Reliance Infrastructure (Rs 520.7): Despite a sharp recent recovery, the long-term outlook still remains negative for Reliance Infrastructure. However, in the short-term the stock could see some strength.
Reliance Infra finds support at Rs 453 and crucial resistance at Rs 656. If the current rally sustains, it can touch this resistance . However, for that to happen, the stock should breach the immediate resistance of Rs 565.
F&O pointers: The Reliance Infrastructure June futures added fresh longs on Friday. Options are not that active. However, a little cue available indicates that Rs 500 could act as a strong support zone.
Strategy: Traders could consider going long on Reliance Infrastructure with a stop-loss at Rs 465 for an initial target of Rs 656. If the underlying equity moves past Rs 565 on a closing-day basis, then traders could shift the stop-loss to Rs 565.
Alternatively, traders could also consider writing 480 or 500 put on Reliance Infra that closed at Rs 7.3 and Rs 12 respectively. While the maximum profit is the premium collected, the loss could be unlimited if Reliance Infra tumbles sharply below Rs 480. Maximum profit occurs if Reliance Infra closes above the strike price. Writing options is very risky. Besides, writing options also involve margin commitments.
While cost of carry of about 15 per cent indicates traders' interest, annualised volatility of about 56 per cent is very high, suggesting huge swing for the stock. So this strategy is suitable only for traders who can bear that risk.
Tata Motors (Rs 240.3): While the long-term positive outlook remains intact, as long as it stays above 213, in the immediate-term, the stock could move in a narrow range of Rs 220-265. Only a close below Rs 185-190 will change the long-term outlook to negative. To regain momentum, the stock has to close above Rs 287.
F&O pointers: The sharp surge on Friday indicates short-covering. Option trading indicates a positive bias, as calls witnessed unwinding of open interests.
Strategy: Consider short-strangle on Tata Motors using 220 put and 250 call. They closed at Rs 2.65 and Rs 5 respectively. Maximum profit is the premium collected (which works out about Rs 7,500), loss would be unlimited. Maximum profit occurs when Tata Motors settles between the strike prices. However, loss could escalate if Tata Motors surges above Rs 268 or dips below Rs 212. Hold the position till expiry.