Tell me a safe F&O trade in the stock of SAIL for August expiry.
Before suggesting a strategy in Futures and Options (F&O), I’m assuming that you understand the risks involved in derivatives. Although there are ways to limit the risks, we cannot completely be safe when it comes to trading.
Now coming to SAIL (₹81.6), the stock has been in a major downturn since August 2021 when it started declining after facing resistance at ₹145. The last leg of decline began in April this year from ₹112 and in June, it made a fresh low ₹63.6.
However, it has been on a recovery since then and it breached a resistance at ₹80 last week. Thus, the stock can be bullish in the near term. It can appreciate towards the resistance band of ₹92-95. This is a strong barrier as a falling trendline and the 61.8 per cent Fibonacci retracement of the prior fall coincide within this price band. So, the rally can be expected to be capped in ₹92-95 region.
So, the strategy should be to capitalise on the potential short-term rally. Therefore, we recommend buying the August expiry 82-strike call option, which closed with a premium of ₹2.2. Since the lot size is 6,000 shares, the outflow will be ₹13,200. Consider holding this till expiry. But book profits when the option premium rises to ₹4.5.
If you can take higher risk, consider going long on SAIL August futures (₹81.9). But as a risk management measure, we would suggest you buy the August 80-strike put option, whose premium closed at ₹1.4 on Friday. Exit both these legs when the futures price touches ₹92.
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