How to benefit from Titan Company stock’s narrow movement

KS Badri Narayanan | Updated on November 04, 2019


Sell deep OTM call and put

The long-term outlook for the stock of Titan Company (₹1,301.4) will remain positive, as long as it stays above ₹1,037. If the stock fails to sustain above that level, then the medium-term outlook will turn bearish. Titan has an immediate support at ₹1,230 and the next one at ₹1,153. If the current bullish trend persists and the stock conclusively closes above ₹1,335, it has the potential to record new peak.

F&O pointers: Titan Company November futures contract added 1.28 lakh shares or 1.32 per cent in open interest on Friday. This is one of the counters that command a high premium over the spot price. Titan November futures contract trades at ₹1,307.20, against the spot price of ₹1,301, signalling a positive bias. Options trading signals a range of ₹1,100 to ₹1,400.

Strategy: We advice traders to consider a short-strangle strategy on Titan Company which is a neutral strategy in options trading, also known as sell strangle. This can be done by selling strikes of ₹1,100-put and ₹1,500-call. These options closed with a premium of ₹6.20 and ₹6.85, respectively. As the market lot is 750 shares per contract, this strategy will result in an inflow of ₹9,787.50. This would be the maximum profit one can earn from this strategy and for that to happen the stock has to settle between ₹1,100 and ₹1,500 at the time of expiry.

This strategy is risky, as wild swings in any one of the directions (up or down) could erode/hurt traders very heavily. So only traders who can withstand margin commitments should consider and others can stay away. The position will start hurting traders if the stock moves above ₹1,513.05 or falls below ₹1,086.95. We advice traders to exit if the loss mounts to ₹4,500 and hold it for at least two weeks.

Follow-up: M&M’s position has turned weak. We advice traders to hold it for one more week and consider reviewing it thereafter.

Published on November 04, 2019

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