While the long-term outlook for the stock of Ashok Leyland (₹136.2) is positive, we expect it to move sideways before taking a clear direction. The stock finds an immediate resistance at ₹152 and a support at ₹117. A conclusive close above ₹152 will trigger a fresh rally that can lift the scrip towards ₹195. On the other hand, a close below ₹117 has the potential to drag the stock to two-digits.

F&O pointer: As the stock has been hovering between ₹130 and ₹140 in the last few days, open interest positions declined. From 3.10 crore shares on tudget Day, open positions dropped to 2.93 crore shares as on Friday. This signals that Traders preferred to exit their positions, fearing a fall. Option trading indicates that Ashok Leyland could move between ₹125 and ₹140.

Strategy: We advise traders to consider a short strangle, which is very risky, on Ashok Leyland. This can be done by simultaneously selling ₹120-strike put and ₹150-strike call, which closed at ₹1.40 and ₹0.60, respectively. As the market lot is 4,500 shares, this strategy will result in an inflow of ₹9,000, which will be the maximum profit one can earn.

For maximum profit to happen, Ashok Leyland must close within the range on expiry. A close below ₹118 or above ₹152 will start affecting the position.

This strategy is purely for traders who can understand the risk involved in option selling and who can withstand wild swings and meet margin commitments. Risk-averse traders can stay away from this strategy, as the loss potential is huge, if the stock rises or drops sharply before the expiry. Besides, the global cues are also volatile, which can change the market direction quickly.

Follow-up: Though HDFC Bank moved higher, the rally was not sharp as expected. So, the position is currently at marginal loss. We advise traders to book loss.

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

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