The near-term outlook for the stock of Wipro (₹407.7) remains negative though the stock is ruling at a crucial level currently. The stock finds immediate support at ₹383 and a close below that will drag Wipro towards ₹336. On the other hand, if Wipro reverses direction, it faces immediate resistance at ₹479. We expect the stock to swing wildly in the short term.
F&O pointer: The futures contract of the stock has witnessed a steady accumulation of open positions from 21 lakh shares to 3.95 crore shares in the last three weeks even as the stock declined. However, the counter is ruling at a healthy premium over the spot price. Option trading indicates that the stock could move in the ₹380-450 range.
Strategy: We advise traders to consider a long strangle on Wipro by simultaneously buying 380-put and 430-call, which closed with a premium of ₹5.95 and ₹3.65 respectively. As the market lot is 1,000 shares this strategy would cost traders ₹9,600. The maximum loss would be the premium paid.
We advise traders to book profit in the position if the combined premium rises to ₹18 (or ₹18,000). This will happen if the stock rises above ₹439.60 or falls below ₹370.40. On the other hand, traders can book loss if the combined premium falls to ₹2.75, which will happen if Wipro is stuck between the strike prices of ₹380 and ₹430.
Follow-up: Though Eicher Motors moved on expected lines on Monday, it reversed direction violently on subsequent days.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading.