Derivatives

Why a bear put spread may pay well on charged up IEX

KS Badri Narayanan | Updated on September 04, 2021

The stock finds an immediate support at ₹522 and the next one at Rs ₹474

The long-term outlook remains positive for the stock of Indian Energy Exchange (IEX) (₹539.25), while we expect some moderation in the rally. The stock finds an immediate support at ₹522 and the next one at Rs ₹474. It finds an immediate resistance at ₹565 and if IEX sustains the current trend, it can reach ₹615. As long as IEX rules above ₹398, the long-term trend remains bullish. However, after a sharp run-up, it appears the stock may cool off a bit before pursuing the bullish path.

F&O pointers: As the counter entered the F&O segment only recently (August 27), it saw good build up in open interest positions. From 9.35 lakh shares, open interest increased to 64.25 lakh shares as the share climbed vertically in the last few days. Options chain suggests that it can move between ₹500 and ₹600.

Strategy: As we expect the stock to consolidate with bearish bias around current level before pursuing rally, we advise a bear-put strategy. This can be initiated by selling ₹520-put and simultaneously buying ₹540-put. These puts closed with a premium of ₹19.05 and ₹28.10. This strategy will cost ₹11,312.50 or ₹9.05/contract (lot size: 1,250 shares). This would be the maximum loss and it will happen if IEX stays above ₹540.

On the other hand, a profit of ₹13,687.50 is possible if IEX falls below ₹520. Traders could consider exiting if the loss mounts to ₹6,750.

Alternatively, traders who wish to take risk can consider going short on IEX futures (₹541.55) while keeping a stop loss initially at ₹565 and can be shifted to ₹539 if the stock opens on negative note for an initial target of ₹522. We would like to reiterate that this strategy is for traders who can understand risk and meet margin requirements, as IEX is one of the volatile counters.

Follow-up: Hindustan Unilever moved on expected line and traders can book profits.

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

Published on September 04, 2021

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