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I hold a 2460-call option on Reliance Industries (October expiry) from ₹48. Requesting your view on this – Manjunath
The stock of Reliance Industries (hovering around ₹2,400 at the time of writing) has found support in the ₹2,330-2,360 price region, certainly a good one. So, the stock may not fall below these levels. But that doesn’t guarantee a rally from here. Sideway movement is possible between ₹2,330 and ₹2,440 in the short term before establishing the next leg of trend. This can be a problem especially considering that you’ve bought call options. As you know, option buyers ought to constantly fight time decay. That means you do not have much time left. Given these factors, below is our suggestion.
Hold your 2460-call option (₹28) till October 18. By then, if the stock breaches ₹2,440, it can quickly appreciate to ₹2,500 or a bit more to ₹2,525 leading to an increase in the call option price. But a rally beyond these levels may not occur soon. So, you can exit the call when the stock hits the ₹2,500-2,525 price band, irrespective of where the 2460-call option is trading. But if the stock cannot surpass ₹2,440 by October 18, it is better to exit the option. You may roll it over to next month’s contract so that you would not lose more because of the time decay, which accelerates as we near the expiry date. Rolling over means you can exit the current month options and immediately buy a November month call option. You may decide the strike price according to your convenience. Although, it is better not to go for far OTM (out-of-the-money) or far ITM (in-the-money) options.
On the other hand, it should be noted that a break below ₹2,330 could lead to a swift fall to ₹2,250. This is the last thing you would want when you hold call options. So, if the price slips below ₹2,330, exit the call option whether you hold October or November contract if there is considerable value left.
Send your queries to derivatives@thehindu.co.in
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