Derivatives

Why shorting Adani Ports futures could work this week

KS Badri Narayanan | Updated on May 09, 2021

Alternatively, traders could consider bear-put spread strategy

The stock of Adani Ports and Special Economic Zone (APSEZ) is ruling at crucial levels. While the long-term outlook will remain positive as long as the stock rules above ₹563, in the short-term it may see volatility with a downward bias. Adani Ports has an immediate support at ₹685 and the next one is at ₹638. On the other hand, the stock finds strong resistance at ₹809 and a conclusive break above this level will reconfirm the bullish outlook. In that case, APSEZ has the potential to reach ₹1,000.

F&O pointers: The counter witnessed unwinding of open positions on Friday even as the share price rose over 3 per cent. This signals that traders preferred to book profits rather than carrying over it. Option trading indicates a range of ₹750-900 for the stock.

Strategy: Traders could consider going short on APSEZ with a stop-loss at ₹780. As dabbling in futures involves higher margin commitments, this strategy is for traders who can understand risk and withstand wild swings. If the stock opens on negative note, the stop-loss can be shifted to ₹754 and aim for a target of ₹685. As APSEZ is volatile counter, it is advisable to trail stop-loss.

Alternatively, traders could also consider bear-put spread. This can be initiated by selling ₹700-strike put and simultaneously buying ₹750-strike put. They closed with a premium of ₹27.15 and ₹11 respectively. As the market lot is 1,250 shares per contract, this strategy will cost investors ₹20,187.50, which will be the maximum loss one can suffer if the stock rules at or above ₹750. On the other hand, a profit of ₹42,312.50 is possible, if APSEZ closes at or below₹700. We advise traders to exit the position either with a profit of ₹10,000 or at a loss of ₹8,500.

Follow-up: Strategy on Maruti triggered profits on first day itself.

Published on May 09, 2021

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