Larsen Toubro (Rs 1,632.7): L&T witnessed a sharp surge since June low to register its 52-week high recently. However, the stock now finds strong resistance at current levels. Only a close above Rs 1,785 will change the long-term outlook positive for L&T. It will face a lot of intermediate resistances till such time. L&T finds immediate support at Rs 1,605 and a close below this level will drag it to Rs 1,470 and even to Rs 1,305, which is a crucial level for the stock. The company board is meeting on Monday to declare September quarter results.
F&O pointers: The rollover of L&T futures to November series is about 14 per cent, as against market-wide rollover of 19 per cent. Option trading suggests neutral view as both calls and puts saw unwinding of open interest positions.
Alternatively, traders could consider calendar put spread on L&T. This can be initiated by selling L&T 1600 October put and buying 1600 November put. They closed with a premium of Rs 9.9 and Rs 37.55 respectively. This will result in a net outgo of about Rs 27.5.
A calendar put spread profits primarily from the faster decaying of the near-term short position and the slower decaying of long option. This strategy is ideal for a trader whose short-term sentiment is neutral. Ideally, the short-dated option will expire out-of-the-money. Once this happens, the trader is left with a long option position. So calendar put spread is best suited when one feels that the underlying asset is expected to stay stagnant or within a tight price range in the short-term and breaks out to downside in future.
Here the maximum profit occurs if L&T stays flat around current levels till October expiry and moves down quickly in November series. Maximum loss is the premium paid; this happens if L&T moves sharply downwards in October series itself. This strategy is strictly for traders who understand options very clearly.
Follow-up: Last week we advised traders to consider long-straddle using Reliance Industries 820 strike. It is slightly out-of-the-money. However, further downslide will result in profit.
K.S. Badri Narayanan
Note: Feedback or queries (on positions) may be sent to f&o@thehindu.co.in, blfuturesoptions@gmail.com by Sunday noon. Replies will be published on Monday.