Future Perfect: Bet on Bajaj Auto's downside

KS Badri Narayanan | Updated on January 06, 2020 Published on January 06, 2020

While the long-term outlook remains positive for the stock of Bajaj Auto (Rs 3,072), in the short-term the stock may face some rough ride. It finds an immediate support at Rs 2,985 and a conclusive close below that level has the potential to weaken the stock towards Rs 2,774. Only a close above Rs 3,265 will change the long-term outlook positive for Bajaj Auto. We expect the stock to move in a downward channel in the short term.

F&O pointers: Bajaj Auto January futures is trading with a good premium, indicating existence long positions. However, in the last few days, open positions is hovering around 25.5 lakh shares, signalling traders are not willing to go for a fresh long or short potions. Option trading indicates a range of Rs 3,000-3,200 for the Bajaj Auto.

Strategy: Traders with a high-risk appetite can consider going short on Bajaj Auto. While stop-loss can be placed at Rs 3,135 (futures price) initially, it can be shifted to Rs 3,085 if Bajaj Auto opens on negative note and stays around that level in the first half of Monday. Trail the stop-loss on every fall.  Aggressive traders with deep pockets to can aim for a target of Rs 2,985. If the stock opens on positive note, stay away from this strategy.

Alternatively traders could also consider bear-put spread by buying the Rs 3,050-put while simultaneously selling the Rs 3,000-put. They closed with a premium of Rs 63.05 and Rs 44.20 respectively. That means, it will cost traders initially Rs 4,712.50 (Rs 18.85/contracts), as the market lot is 250 shares. This will be the maximum loss on can suffer in the strategy if Bajaj Auto stays or moves up. A profit of Rs 7,787.50 is possible, if the stock falls below Rs 3,000.

Follow-up: Hold ONGC contracts.

Published on January 06, 2020
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