Derivatives

Consider short strangle on IRCTC this week

KS Badri Narayanan | Updated on July 17, 2021

Option positioning by participants indicates a range of ₹2,300-2600 for the stock

The outlook for Indian Railway Catering & Tourism Corp Ltd (IRCTC) (₹2,426.65) remains bullish. If the current bullish trend sustains the stock can reach ₹2,840. It finds an immediate support at ₹2,280 and the major one at ₹2,168. A close below the latter will change the medium term outlook negative for IRCTC. After a strong rally on Friday, we expect the bullish momentum to slow down a bit.

F&O pointers: IRCTC July futures closed at ₹2,433 against the spot close of ₹2,426.65. Besides, on Friday, open interests jumped over 30 per cent along with a sharp rise in share price. These signals indicate accumulation of long positions in IRCTC. Option trading indicates a range of ₹2,300-2,600 for the stock.

Strategy: We advise traders to consider a short strangle on IRCTC, which is strictly for traders who can bear high risks. This can be initiated by selling ₹2,160-put and ₹2,680-call. These options closed with a premium of ₹6.50 and ₹7.75, respectively. As the market lot is 325 shares, this strategy will ensure an inflow of ₹4,631.25.

As the maximum profit is limited to the inflow i.e., ₹4,631, this strategy is strictly for traders who have strong balance to meet margin commitments and have patience to withstand wild swings. Besides, traders should also keep it in mind that IRCTC is a highly volatile counter. The maximum profit will occur if IRCTC closes between the strike prices ₹2,160 and ₹2,680. A close above ₹2,694.25 or below ₹2,145.75 will start hurting the position.

Follow-up: Book profits both in Hindalco ₹400-call and ₹390-call.

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

Published on July 17, 2021

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