Derivatives

How you can use put options to profit from DLF stock downtrend

| Updated on February 13, 2021 Published on February 13, 2021

Sell ₹300-strike put and simultaneously buy ₹315-strike put; strategy will cost ₹23,100

In the short-term the stock of DLF may move in a narrow range with downward bias. The stock finds the most important support level at ₹256 and a close below will alter the medium-term outlook as well. The stock finds an immediate support at ₹282. On the other hand, DLF finds an immediate resistance at ₹344 and then at ₹396.

 

F&O pointers: DLF February futures saw unwinding of open positions during the last few days. From a high of 3.16 crore shares on February 4, open interest positions have slipped to 2.89 crore shares. This signals that traders prefer to book profits on DLF even as the stock climbed from ₹290. DLF futures at ₹312.65 is ruling in a premium with respect to the spot price of ₹311.75.

Strategy: For conservative traders, we advise a bear-put spread strategy. This can be done by selling ₹300-strike put and simultaneously buying ₹315-strike put. These options closed with a premium of ₹15.8 and ₹8.8 respectively. That means, this strategy will cost ₹7/contract or ₹23,100 (lot size: 3,300 shares), which would be the maximum loss and that will happen if DLF stays above ₹315. On the other hand, there could be a profit ₹8/contract or ₹26,400 if DLF closes at or below ₹300.

We advise traders to exit the position if loss mounts to ₹8,500 or if profit stands at ₹15,000.

Traders, who can understand high risk involved, can consider going short on DLF futures. Stop-loss can be placed initially at ₹322. It can be shifted to ₹312 if the stock opens on weak note.Aim for a target of ₹298.

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Published on February 13, 2021
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