Market Strategy

Stock strategy: Consider short straddle on Suzlon

K.S. Badri Narayanan | Updated on November 15, 2017 Published on May 19, 2012



Suzlon Energy: The long-term outlook remains negative for Suzlon Energy. However, in the short-term, the stock could move in a narrow range. It finds immediate resistance at Rs 22.5 and the next one at Rs 27. It finds crucial support at Rs 18.5 and a close below that could weaken the stock sharply. In that event, it could even go to Rs 12-13 levels breaching its all-time low of Rs 17.2.

F&O pointers: Despite smart gains on Friday, the Suzlon May futures saw heavy unwinding of open interest. Option trading indicates a neutral view as both puts and calls shed open interest positions.

Strategy: Traders can consider short straddle on Suzlon futures. Short straddle strategy is best suited when one expects the underlying stock to move in a narrow range. Maximum profit in this strategy is the premium collected, while the loss could be unlimited. Besides, writing option involves higher margin commitments. This strategy is suggested only for traders who can withstand wild swings.

This can be initiated by selling 20-strike call and put on Suzlon. They closed on Friday at Rs 1.1 and Re 1 respectively. Maximum profit occurs (about Rs 16,000) if Suzlon closes at Rs 20 at the time of settlement. Loss will start to escalate if Suzlon closes above Rs 22 or below Rs 18. Market lot is 8,000 units a contract. Hold the position till expiry.

India Cements: The outlook remains weak for India Cements. The stock finds support at Rs 67 and resistance at Rs 77. A close below the support has the potential to trigger a big sell-off. In that event, the fall could be steep and swift. India Cements finds next support at Rs 40. Only a close above Rs 135 will change the outlook to positive for the stock.

F&O pointers: The stock accumulated fresh short positions on Friday. Options are not active.

Strategy: Traders can consider going short on India Cements with a stop-loss at Rs 77 for an initial target of Rs 64. Market lot is 2,000 units.

Follow-up: Last week, we had advised short strangle on Reliance Industries using 680 put and 720 call. The position is marginally in-the-money. Traders can consider holding it for one more week.

We had also advised shorting Bata India with a stop-loss at Rs 863. Though the stock moved on expected lines initially, it recovered sharply to hit the stop-loss.

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

Published on May 19, 2012
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