The stock of Bank of Baroda (₹135.3) is ruling at a crucial level. While its long-term outlook remains positive as long as it rules above ₹93, the stock may move in a narrow price range with a downward bias in the short term. The stock finds an immediate support at ₹126 and the major one at ₹116. If the stock manages to hold above ₹116, it has the potential to reach ₹155 and a close above that level can trigger fresh rally.
F&O pointers: Bank of Baroda futures closed at ₹135.45 against the spot close of ₹135.30, which is almost on par with the latter. In the last one-week, open interests dipped from 90.35 lakh shares to 89.38 lakh shares. These signal unwinding of open positions as traders do not wish to roll over their positions, expecting a limited upside for Bank of Baroda.
Among the options, 120-put and 140-call saw concentration of open positions, signalling that the stock could face support and resistance at these levels respectively.
Strategy: We advise a short-strangle strategy on Bank of Baroda. As this is a risky strategy where the losses can potentially be higher and the profit is limited, this is for traders who can understand risk and have enough money to meet margin commitments.
This strategy can be initiated by selling 155-call and 115-put which closed with a premium of ₹0.60 and ₹0.45 respectively. As the market lot is 5,850 shares per lot, this strategy will ensure an inflow of ₹6,142.50, which will be the maximum profit one can earn. The maximum profit happens if the stock ends the current expiry within ₹155-115 range.
On the other hand, a move above ₹156.05 or decline below ₹113.95 will start hurting the position. For that to happen, Bank of Baroda must swing 10 per cent from current level — either up or down. Nevertheless, the time decay on options will help the position.
We advise traders to hold the position for two weeks. The stock may see a wild swing on Monday, but we advise participants to enter the position if the combined premium remains in the ₹1-1.25 range and exit the position once the premium dips to the ₹0.1-0.25 range.
This strategy is strictly for traders who have higher risk-appetite.
Follow-up: Last week, we advised bear put spread on the stock of SRF and an alternative strategy of shorting SRF futures. Contrary to our expectations, the stock surged sharply which could have triggered stop-loss.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading.