F&O Query: Analysis of Tata Steel put option and Bank Nifty futures

Please share your analysis on Tata Steel 145PE for March 28 Expiry

Muthu M

Tata Steel (₹157.3):  The stock of Tata Steel is in an uptrend. Last week, it hit a fresh high of ₹159.15 before closing a little lower at ₹157.3. As it stands, there are no signs of reversal and the fresh breakout last week has only increased the likelihood of further upside from the current level.

The stock will most probably hit ₹170 in the near term. In such a case, the premium of put options will drop. So, at this juncture, buying put options carry high risk as you will go against the underlying trend.

Given the current momentum with which the stock is appreciating, it is ideal to consider call option longs on this stock. Alternatively, you can sell put options. Note that shorting options require higher margin commitments.

In case you choose to short put instead of buying calls, we would suggest you go for put spreads rather than going for vanilla put options. That way, the risk will be lower and you can reduce the margin obligations.

I have a short position Bank Nifty March future contract initiated at ₹47,067. Should I average at current price or exit?

Palani Shanmugam

Bank Nifty (47,836): The index rallied last week and closed above key resistance levels. Consequently, Bank Nifty futures also moved up and closed at 47,958 last week. The March contract surpassed the resistance at 47,700, opening the door for further upswing. There are no indications of the contract turning south.

According to the chart, Bank Nifty futures is likely to touch 49,000 in the near term. A breakout of this can lift the contract to 50,000.

If there is a decline from the current level, the price band of 47,500-47,700 will provide support. Below this is the 20-day moving average support at 47,000. Only if Bank Nifty futures drop below 47,000, the trend can turn bearish. Until then, the bulls will have an upper hand.

Considering the above, our suggestion would be to exit the short position.

You can opt to buy Bank Nifty futures or consider monthly expiry at-the-money (ATM) call options.

Send your queries to derivatives@thehindu.co.in

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