Derivatives

F&O strategy: Sell deep out-of-the-money HCL Tech call option

KS Badri Narayanan | Updated on March 27, 2021

Stock may see some volatility ahead of result announcement

The long-term outlook remains positive for HCL Technologies (₹958.5), as long as the stock remains above ₹725. The stock finds an immediate support at ₹913 and the next one at ₹842. Immediate resistance appears at ₹1,010 and a close above ₹1,047 will trigger a fresh rally in the stock that can lift it to ₹1,250. We expect HCL Technologies to move in a narrow range before taking a clear direction.

F&O Pointers: HCL Technologies is one of the few counters that sees high rollovers to next series, signalling existence of long-term investors. This time too, the counter witnessed a healthy rollover of 96 per cent. The HCL Technologies April futures witnessed steady accumulation of open interest in the last two weeks, though the price has been moving in a narrow range. Option trading indicates that HCL Technologies can move in ₹900-1,000 range.

Strategy: We advise traders to sell (write) ₹1,060-call. This strategy is high risk as the profit is limited only to the premium received and the loss could be humongous if stock rallies sharply. So, only traders who can understand the risk and have enough money to meet margin commitments can consider this strategy. Besides, the company generally announces quarterly results during the third week (between 15-20). So, the stock may see some volatility ahead of the result announcements.

As the ₹1,060-call closed at a premium of ₹10.65, the maximum profit one can get from this strategy is ₹7,455 (market lot is 700 shares). The maximum profit will happen if HCL Technologies fails to cross ₹1,060. We advise traders hold the position for at least two weeks to get maximum benefits due to time decay. Traders could exit from this position, if the loss mounts to ₹5,500.

Follow-up: Sun TV, though the risk-reward ratio was largely in favour, the bull-call spread ended in loss.

Published on March 27, 2021

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