Consider short strangle for Sun Pharma

K.S. Badri Narayanan | Updated on May 18, 2020

The long-term outlook still remains negative for Sun Pharmaceuticals (Rs 448), as long as it rules below Rs 628. However, the medium-term outlook turned positive for Sun Pharma while in the short-term it will move in a narrow range before pursuing a positive journey. The stock finds immediate resistance at Rs 477 and support at Rs 404. A close below the latter would drag Sun Pharma to Rs 365 and even to Rs 332. On the other hand, a conclusive end above Rs 447 has the potential to list the stock to Rs 525 and also to Rs 585.

F&O Pointers: Sun Pharma futures shed open positions last week along with fall in share prices. This signals, traders prefer to book profits rather than rolling over positions. Option trading signals that the stock could move in the range of Rs 350-500.

Strategy: We advice traders to consider a short strangle on Sun Pharma. This can be constructed by selling 550-call and 350-put, which closed with a premium of Rs 1.65 and Rs 1.55 respectively. As the market lot is 1,250 shares per contract, this would result in an inflow of Rs 4,000 to the trader, which would be a maximum profit one can earn. For that to happen, Sun Pharma has to settle between Rs 350 and Rs 550.

A close above Rs 553.20 or a close below Rs 346.80 will start affecting the position. As selling options involve huge margin money and could result in a heavy loss (if Sun Pharma moves in a single direction - either up or down violently), we advise this strategy os for traders who can withstand the risk and wild swings.

Hold the position till expiry.

Hold Nifty-50 9500 call option as advised last week.

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

Published on May 18, 2020

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