I am holding Apollo Tyres 410 CE at ₹9.65. Please guide me whether to hold till expiry. Also suggest target and stop-loss for the same

Abhay Dagli

Apollo Tyres (₹414.6): The stock has been rallying since early November. It rallied after taking support at ₹370. But after marking a high of ₹435 on November 17, the stock price started to moderate. Since it closed at ₹414.6, the support at ₹412 stays true. So long as this support remains valid, the bias will be bullish.

Hence, we suggest holding the 410-strike call option, which closed at ₹7.65 on Friday.

For options, one should ideally place stop-loss based on the chart of the underlying. The prevailing price action of Apollo Tyres on the daily chart shows that the probability of a fall and a bounce off the support at ₹412 is the same at the moment. So, exit the call option if the share price falls decisively below the support at ₹412. Because a breach of ₹412 can lead to the stock depreciating to ₹400 quickly.

Even if the stock bounces off the support at ₹400, it might not be able to recover beyond ₹410 before the current expiry.

If Apollo Tyres rebounds on the back of the support at ₹412 from here, it could face a minor resistance at ₹425. A breakout of this can lift the stock to ₹440. We recommend exiting the call option at the prevailing price when the share price rallies and touches ₹425. By this time, the option price could be between ₹13 and ₹15.

After liquidating the option, if the stock surpasses the hurdle at ₹425, you can consider buying the call option again. However, prefer to go long on December contracts so that you will have more time for the potential rally to play out.

Our suggestion would be to buy a 430-strike December expiry call option once the stock moves above the resistance at ₹425. Exit this trade when the underlying stock hits ₹440, a resistance level.

Send your queries to derivatives@thehindu.co.in

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