Consider short strangle on Reliance Industries

KS Badri Narayanan | Updated on June 29, 2020

The stock of Reliance Industries is ruling strongly in uncharted territory. The long-term outlook for Reliance Industries will remain positive as long as it rules above ₹1,408. The stock finds an immediate support at ₹1,617 and the next one at ₹1,537. If the current bullish trend sustains, Reliance Industries stock could cross the crucial ₹2,000-mark. However, we expect the stock to move in a narrow band with a negative bias.

F&O Pointer: Reliance Industries July futures closed at ₹1,738.70, in a discount with respect to the spot, which closed at ₹1,741.65. This signals existence of short positions. Option trading indicates a range of ₹1,600 and ₹1,800 for Reliance.

Strategy: We advice traders to consider a short strangle on Reliance Industries by selling ₹1,400-put and ₹2,000-call. They closed with a premium of ₹4.70 and ₹14.80 respectively. This strategy will ensure a total inflow of ₹10,340, as the market lot is 550 shares.

Maximum profit, which would be the initial inflow, will happen if Reliance rules between the strike prices.

However, loss would be unlimited if Reliance moves swiftly in any one of the directions, i.e., up or down. So, this strategy is for traders who understand the risk and have enough margin money to withstand the wild swings.

The position will start pinching the pocket if Reliance moves above ₹2,018.80 or slips below ₹1,381.20. We advise the traders to hold it for at least two weeks.

Follow-up: Contrary to our expectation LIC Housing Finance opened sharply lower last week, and had not provided any entry point.

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

Published on June 29, 2020

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