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I bought SBI Life December futures at ₹1,415. But the price has fallen. Should I exit or are there any chances for a recovery?
Rajaram
SBI Life Insurance Company (₹1,394.3): The stock has seen a decline in price over the past couple of weeks. However, ₹1,380 is a support and this can stop the downtrend. The 50-day moving average coincides at ₹1,380 making it a strong base.
So, we suggest holding the December futures, which closed at ₹1,399.7 on Friday. But note that a breach of the support at ₹1,380 can trigger a sharp fall. Hence, we suggest placing a stop-loss a little below the support. We suggest a stop-loss at ₹1,370.
When the contract recovers past ₹1,450, tighten the stop-loss to ₹1,420. Book profits at ₹1,485. If neither target nor stop-loss is hit before the expiration of December contracts, you can roll-over the longs to January futures. Stop-loss and target for that can be at ₹1,380 and ₹1,490 respectively.
I exited an AB Capital put option on Friday with profits. Is it a good strategy to buy puts again? Or should I wait for a rally before buying a put option?
Saravanan Na
Aditya Birla Capital (₹159.7): The stock, which has been on a downtrend since July, has now reached a support at ₹160. Although the closing price is slightly below this level, we cannot consider that as a strong break. So, the support at ₹160 is still true and that makes your exit of put option a good decision.
Going ahead, rather than a rally, we would recommend that you buy a put option only if the stock sees a daily close below ₹160. The reason being this can lead to another leg of fall, potentially to ₹140, the nearest notable support.
Buy an at-the-money put option when the stock falls decisively below ₹160. Exit the option when the stock price drops to ₹145. Rather than buying December series puts, we advise you to go for January contracts. But keep an eye on the liquidity.
Do not buy put options if there is an upswing from here, because the broader bull trend is not invalidated and a bounce off the support at ₹160 can lead to the resumption of the uptrend.
Send your queries to derivatives@thehindu.co.in
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