The stock of Coal India (₹443.9) declined last week. It fell off the resistance at ₹485. However, the overall uptrend remains valid and the moderation in price is likely to be a corrective fall rather than a bearish reversal.
There is a 20-day moving average (DMA) support at ₹442 and below this is another support at ₹430. Only a breach of ₹430 will turn the short-term trend bearish.
Since the broader trend is up and that Coal India’s stock has bounced off the 20-DMA several times in the past, the probability of a rally from the current level is high. In the near term, the stock will most likely rally to ₹482.
Although there is a chance for the break-out of ₹482, traders can aim for this as a target and exit the longs. Once ₹482 is broken decisively, fresh longs can be considered again.
Strategy: As the February contracts are nearing expiry, we suggest buying call options from March series. Our recommendation would be to buy the 450-strike March call option, which closed at ₹19.65 on Friday. When the underlying stock appreciates to ₹482, this option premium is expected to rise to ₹38-40 range.
That said, we suggest deciding exit points based on the underlying’s price movement. So, after buying 450-call now at around ₹20, exit this at the prevailing price when Coal India’s stock hits ₹482. On the other hand, if the stock falls below ₹430, liquidate the option at the going price.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading