Derivatives

Go for plain vanilla call option of ITC

K. S. Badri Narayanan | Updated on: Jan 08, 2022
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Option trading indicates that the price can move in a range of ₹200-240

The stock of ITC (₹218.4) is ruling at a crucial level. The stock has been moving in a sideways range between ₹195 and ₹265. We expect this trend to continue for quite some with a positive bias. ITC finds an immediate support at ₹208 and resistance at ₹236. While a close above ₹262 will change the long-term outlook too positive, a conclusive close below ₹163 will change outlook negative.

F&O pointers: From a high of 20.69 lakh shares on December 30, open positions slipped to 20.19 lakh shares. As the stock has been hovering around ₹210-220 for quite some time, traders appear to have squared-off open interests. Option trading indicates that the price can move in a range of ₹200-240.

Strategy: Traders could consider buying ₹220 call option, which closed with a premium of ₹4.60. As the market lot is 3,200 shares a contract, this will cost traders an initial outflow of ₹14,720 which will be the maximum loss one can suffer. The maximum loss will happen if ITC fails to move above ₹220 on expiry.

The break-even price is ₹224.60 and therefore, this position will turn profitable if ITC moves past this price level. Profit potential is high if ITC moves up swiftly. We advise traders to exit the position at a profit of ₹12,000; or exit if the loss mounts to ₹7,800.

Follow-up: Traders can book profits from bull-call strategy recommended on Bharti Airtel. Those who hold Bharti Airtel long futures, can continue to do so with a revised stop-loss of ₹690.

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

Published on January 10, 2022

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