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I’m holding a 425-put option (February expiry) on ITC bought for ₹8. Shall I hold this option or exit? Also, can I buy the REC call option since the stock price has corrected?
Arjun R N
ITC (₹415.5): The stock began its recent leg of downtrend two weeks ago. Last week, it dropped below an important support at ₹430. This is good news for the bears since the breach of this base has increased the odds of the downtrend extending more.
Although there is a chance for the stock to see a minor corrective rally to ₹430, the price action indicates that it could fall to ₹390, its nearest notable support. A breach of this can drag ITC share price to ₹375. Only a decisive breakout of the ₹430-435 price band will turn the outlook positive.
Since there is a chance for a corrective upward move from the current level, we suggest liquidating the 425-strike put now at around ₹13* and then re-enter when either of the following scenarios occur. Decide the strike price based on your risk profile.
Buy ITC put again if the share price goes up to ₹420-430 band. But if the price falls from here without a retracement, consider buying puts when the stock slips below ₹408. Exit this trade at the prevailing option premium when the underlying stock touches ₹390.
REC (₹482.4): The stock price of REC has corrected last week, especially due to the fall on Friday. However, the overall trend remains bullish. As it stands, the 20-day moving average at near ₹470 is offering good support.
That said, we expect REC’s share price to decline to ₹450-460 price region, another support where a rising trendline coincides, before resuming the next price swing towards north. In the short term, the stock has potential to touch ₹550.
Given the above, you can wait for the share price to dip to ₹460 and then buy a call option at the prevailing price. We recommend buying the 460- or 470-strike call option. When REC’s price appreciates to ₹525 post initiating long on call, place stop-loss at the entry price of the option. Exit this trade when the stock hits ₹540.
Send your queries to derivatives@thehindu.co.in
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