The stock of Power Grid Corporation of India (Powergrid) (₹274.55) rules at a crucial level. The stock finds an immediate support at ₹254 and if this holds, it could test a new peak at around ₹330. Only a close below ₹239 will alter the current bullish outlook. Yet, we expect the stock to move in a narrow range in the near term before taking a clear direction.
F&O pointers: Powergrid February futures closed at ₹275.15 against the spot close of ₹274.55. The contract has been shedding open interests steadily in the last eight days.
From a high of 7.03 crore shares, open interest declined to 5.79 crore shares as the stock price hovered between ₹260 and ₹285. Option trading indicates that the stock could move in the ₹250-300 range.
Strategy: Consider a short strangle on Powergrid. This can be constructed by selling 310-call and 240-put simultaneously. As these options closed with a premium of ₹1.15 and ₹0.50 respectively, traders will earn ₹1.65/contract.
The maximum profit would be the premium earned, which is ₹5,940 (market lot: 3,600 shares) and this will happen if Powergrid is stuck between ₹310 and ₹240.
This is a risky strategy, as the maximum profit is limited to premium earned (₹5,940), while loss can be considerable if the stock swings wildly in either direction. So, risk-averse traders can stay away.
A close above ₹311.65 or below ₹238.35 will start hurting the position. We advise traders to hold the position for a week.
Follow-up: Retain Reliance Industries long positions with mentioned stop-losses.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading