Short strangle strategy may pay well for Ashok Leyland

KS Badri Narayanan | Updated on October 21, 2019

The shares of Ashok Leyland remain at a crucial level. The stock finds a key resistance a ₹83.50 and the major one at ₹121. A close above the latter will confirm the long-term bullish view on the stock. On the other hand, it finds immediate support at ₹72.30 and a crucial one at ₹62.50. A close below the latter will change the outlook negative for the stock.

F&O pointers: The Ashok Leyland futures closed in discount at ₹77.10 as against the underlying price of ₹77.50. Despite a substantial gain of about 4 per cent on Friday, Ashok Leyland futures shed 37.86 lakh in open positions, indicating profit-booking by some traders. Option trading suggests a range of ₹70 and ₹80 for Ashok Leyland.

Strategy: We advise traders can consider a short strangle strategy on Ashok Leyland. This can be constructed by simultaneously selling the ₹85-strike call, and the ₹65-strike put options, which closed with a premium of ₹0.90 and ₹0.40 respectively.

This would entail an inflow of ₹7,800 to traders, which would be the maximum profit one can earn from this strategy. For a maximum profit, Ashok Leyland stock has to close between the strike price i.e. between ₹85 and ₹65 at the time of expiry.

On the other hand, loss potentials are very high, if Ashok Leyland makes a sharp move either up or down. Any close below ₹63.70 or above ₹ 86.3 will start pinching the traders.

We advice traders to hold on to the position for at least till close to the expiry. Risk-averse traders could stay away from the position, as wild swings could result in a considerable loss. Besides, it may result in taking delivery of 6,000 Ashok Leyland shares.

Published on October 21, 2019

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