I’m holding 2 lots of 300-strike put options on Canara Bank at ₹2.55. I need your advice on whether to hold or exit – Anish
The stock of Canara Bank (₹320) has been falling over the past couple of weeks. However, there is a considerable support band between ₹310 and ₹315. On the back of this, the downward momentum seems to have lost momentum and the stock has been trading sideways in the past couple of sessions. While the stock holds above ₹310, the probability of a further fall is low. Also, both the 20- and 50-day moving averages have converged and now lie around ₹320, which can offer support.
Given the above factors, we suggest exiting the 300-strike put option (₹1.5) that you hold.
That said, you can buy a put option if the stock decisively breaches support at ₹310, because a break below this support can result in the stock falling to ₹300. The downmove can even extend to ₹290.
Alternatively, you can consider going short on Canara Bank futures if the underlying stock invalidates the support at ₹310. The equivalent level of ₹310 in the stock’s future contract (January expiry) is ₹314 i.e., short if the futures slips below ₹314. Place the initial stop-loss at ₹323 and tighten it to ₹316 when the price falls below ₹308. Exit the shorts when the price touches ₹294.
Notably, the above trade can be executed only if the support is breached. There is a good chance for the stock to stay sideways within ₹310 and ₹330 for some time and so this may not be an ideal candidate for trading until either ₹310 or ₹330 is breached. Consolidation can lead to considerable time decay in option contracts, which makes buying a call option before the breakout of ₹330 an unviable trade.
Overall, consider exiting the put option that you hold now and wait for the breach of either ₹310 or ₹330.
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