Infosys: After a steep fall in April, Infosys has been hovering in a narrow range. It is likely to continue its sideways movement between Rs 2,250 and Rs 2,600 in the short-term. Only a break from this range will set a clear trend for the counter. A close below Rs 2,250 will trigger a fresh sell-off, which could drag Infosys towards Rs 1,750 initially. A close above Rs 2,600 could lift the stock to Rs 2,850.
F&O pointers: Infosys futures witnessed accumulation on longs on Friday. The futures closed at a marginal discount to the spot price. Cost of carry is negative, indicating that traders are not willing to carry over long positions, while option trading indicates a neutral view with a negative bias.
Strategy: Traders could consider a short-straddle on Infosys. This can be initiated by selling 2,400-strike call and put, which closed at Rs 77.6 and Rs 6.1 respectively.
Short-straddle strategy is best suited when the underlying stock is likely to move in a narrow range. While maximum profit is the premium collected, the loss could be unlimited if Infosys moves sharply in one direction i.e. either up or down. Besides, writing option involves high margin commitments. So this strategy is for traders who can afford high risks. Loss will start to creep in if Infosys closes above Rs 2,485 or below Rs 2,315. Maximum profit will occur if Infosys settles around Rs 2,400.
ONGC: After a strong rally last week, the stock could face strong resistance in the near-term. ONGC finds immediate resistance at Rs 293 and support at Rs 261. The stock is heading towards support in the immediate term.
F&O pointers: ONGC futures shed open interests on Friday. Option trading indicates neutral view as both call and put shed open position.
Strategy: Consider short strangle on ONGC using 280 call and 270 put, which closed at Rs 3.5 and Rs 0.6 respectively. While the maximum profit is the premium collected, that i.e about Rs 4,000 in this case, the loss could be unlimited if ONGC closes above Rs 286 or below Rs 265. Maximum profit occurs if the stock closes between Rs 270 and Rs 280.
Alternatively, traders could also consider selling ONGC futures with a stop-loss at Rs 284 for an initial target of Rs 272. Avoid this strategy, if the stock remains firm on Monday.
Follow-up: Last week, we had advised traders to consider going long on Reliance Infrastructure. The stock moved on expected lines. As advised, stop-loss could be shifted to Rs 565, if Reliance Infra can breach that level. The revised stop-loss now is Rs 515.
We had also advised selling puts (either 480 or 500), which could have yielded best returns. Traders can consider holding Tata Motors (short strangle using 250 call and 220 put), as the stock is moving on expected lines.