Consider short strangle on ONGC

KS Badri Narayanan Chennai | Updated on July 20, 2020

The long-term outlook remains negative for the stock of ONGC. The stock finds an immediate support at ₹72.90 and the crucial one at ₹65.75. A close below the latter will trigger a fresh decline in ONGC, which might take the stock towards ₹50. ONGC finds an immediate resistance at ₹92.80 and the next one at ₹103.45. A close above ₹118 will change the medium-term outlook to positive for ONGC, which can take the stock towards ₹147.90.

F&O pointers: ONGC July futures at ₹80.75 is marginally trading in the premium with respect to the spot close of ₹80.35. Despite strong gains by ONGC futures on Friday, open interest declined, signalling traders’ preference to book profit. Options trading indicates that the stock will move in a range, as both call and put options of most strike prices shed open positions.

Strategy: Traders could consider a short strangle on ONGC. This can be initiated by selling 90-call and 70-put. These options closed with premiums of ₹0.75 and ₹0.30 respectively. As the premium earned is the maximum profit in the strategy, this strategy will ensure an inflow of ₹8,085 (market lot 7,700 shares). A close below ₹68.95 or above ₹91.05 will start pinching the positions.

This strategy is for traders who can withstand wild swings and have deep pockets to meet margin commitments. Risk-averse traders can stay away from this strategy. Traders could exit from the positions if the loss mounts to ₹5,500.

(Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading.)

Published on July 20, 2020

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