Derivatives

Sell deep OTM Asian Paints call option this week

KS Badri Narayanan | Updated on June 06, 2021

Though option trading indicates a range of ₹2,900-3,000, the stock has the potential to touch ₹3,230

The long-term outlook remains positive for Asian Paints (₹2,924.9), as long it rules above ₹2,239. However, we expect the stock to move in a narrow range in the short term before taking a clear direction. While immediate support appears at ₹2,859, Asian Paints finds an important support at ₹2,697. On the other hand, if it manages to sustain the immediate support level, then the stock has the potential to reach new heights and can touch ₹3,230.

F&O pointers: The Asian Paints June futures (₹2,921.3) on Friday slipped marginally along with fall in open interests. In fact, in the last four days, the futures shed open positions from a high of 47.44 lakh shares to 42.38 lakh shares, indicating that traders are not willing to carry over their position. Option trading indicates a range of ₹2,900-3,000.

Strategy: This strategy is highly risky and strictly for traders who can withstand wild swings and have deep pockets to cough up margin commitments. We advise traders to consider selling 3,200-strike call. This option is closed with a premium of ₹10.90 and as the market lot is 300 shares per lot, this strategy will ensure an inflow of ₹3,270, which will be the maximum profit one can earn. To achieve a maximum profit, the stock has to settle at or below ₹3,200 at the time of expiry. However, loss could be unlimited if Asian Paints surges sharply. A move above ₹3,210.90 will start hurting the position.

Follow-up: Strategy on Reliance Industries ended in profits.

Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading.

Published on June 06, 2021

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