Derivatives

HDFC Bank: Why buying puts can work this week

KS Badri Narayanan | Updated on March 06, 2021

Position will turn positive only if the stock slides down swiftly

The long-term outlook remains positive for HDFC Bank but the stock looks negative in the short-term. The stock finds an immediate support at ₹1,470 and the crucial one at ₹1,395. A close below the latter has to potential to drag HDFC Bank to ₹1,251. On the other hand, a conclusive close above ₹1,605 will reconfirm the bullish trend and can lift the stock to ₹1,710.

 

F&O Pointers: HDFC Bank futures closed at ₹1,534.30 as against the spot price of ₹1,530. Amidst volatility, its futures saw accumulation of open positions. At 2.62 crore shares on Friday, open interest is the highest so far in the month. Trading in call options indicates that ₹1,600 will act as a strong resistance while puts indicate support at ₹1,400.

Strategy: We advise traders to consider buying HDFC Bank ₹1500-strike put. The option closed with a premium of ₹36.20. As the market lot is 550 shares, this strategy will cost investors ₹19,910, which would be the maximum loss and that will happen if HDFC Bank closes at or above ₹1,500.

A close below ₹1,463.20 will start making the position profitable. Exit the position if the loss mounts to ₹5,000 or at a profit of ₹15,000.

Alternatively, traders could consider going short on HDFC Bank futures. This strategy is strictly for high-risk investors. Stop-loss can be placed initially at ₹1,557 which can be shifted to ₹1,538 if the counters open on a weak note. Traders could aim for a target of ₹1,470.

Follow-up: As advised, hold L&T bear-put spread strategy till the monthly expiry.

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Published on March 06, 2021
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