Market Strategy

Consider shorting United Phosphorus

K.S. Badri Narayanan | Updated on February 20, 2011


United Phosphorus (Rs 136.4): After a mild pull back, United Phosphorus slipped sharply on Friday, confirming the negative trend for the stock.

It finds an support at Rs 129 and a drop below that could take United Phosphorus to Rs 118 and then to Rs 102. It faces resistance at Rs 152.

However, only a close above Rs 172 would negate the current negative outlook for the stock.

The stock is ruling near the 52-week low level.

F&O pointers: The United Phosphorus February futures closed at a negligible premium to the spot, while March futures closed somewhat higher at Rs 137.6. The rollover of open interest for March futures however remained poor. Options are not active in the counter.

Strategy: Consider going short on United Phosphorus futures with a tight stop-loss at Rs 146 (spot price on a closing day basis) for an initial target of Rs 129.

If United Phosphorus opens on a negative note, shift the stop loss to Rs 135.

Cipla (Rs 307.3): The outlook remains negative for Cipla. The stock finds an immediate support at Rs 302 and resistance at Rs 324.

A conclusive close below the support has the potential to weaken the stock to Rs 288 and then to Rs 263.

The stock is ruling near 52-week low level, which is Rs 296.3.

F&O pointers: Cipla futures added fresh short positions on Friday. It saw a rollover of just 9 per cent. Option trading also indicates negative bias.

Strategy: Consider going short on Cipla March futures with a tight stop-loss at Rs 312.

Alternatively traders can consider writing Cipla 320 February call, which closed at Rs 8.50 on Friday.

This is a highly risky strategy, as the maximum profit is limited to the premium collected, while loss could be unlimited.

Besides, one has to fork out margin payments to enter into the strategy.

NOTE: Traders with little appetite for risk can stay away from both the strategies, as the overall market may see high volatility.

Follow-up: Last week, we had advised traders to consider long on IDFC and short on Bombay Dyeing.

IDFC, though moved on expected lines, failed to sustain the gains over the week. Traders can exit the position.

However, IDFC 140 call is still in positive zone. Bombay Dyeing had hit the recommended stop loss level.

Feedback or queries (on positions) may be sent to >f& by Sunday noon. Replies will be published on Monday.

Published on February 19, 2011

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