Market Strategy

Consider short straddle in Punj Lloyd

K.S. Badri Narayanan | Updated on April 20, 2013

Punj Lloyd (Rs 51.7): The long-term outlook remains negative for the stock, as long as it stays below Rs 135. The stock finds support at Rs 46 and resistance at Rs 64. In the immediate-term, Punj Lloyd is likely to remain range-bound. A break from this level will trigger a sharp swing on that side.

F&O pointers: The stock witnessed huge short build-up on Friday. Just about 13 per cent open positions got rolled over to next month series. Unwinding in puts indicates negative bias.

Strategy: Traders could consider short straddle on Punj Lloyd using Rs 52.5-strike. While the call closed at Rs 0.85 on Friday, the put ended at Rs 1.60. Short straddle is best strategy when one expects the underlying to move in a narrow range. As we expect the stock hover around current level, short straddle is best suited.

Maximum profit in this strategy is the premium collected. That means, the maximum profit traders can earn is limited to Rs 19,600. For that to happen, Punj Lloyd should settle at around Rs 52.50.

However, loss could be unlimited if the stock swings wildly in any one of the directions — either up or down. Traders will see a pressure on their position, if Punj Lloyd goes above Rs 55 or dips below Rs 50.

So, this strategy is suitable for traders who can afford to take that risk. Traders to fork out margin money for writing options.

Follow up: Last week, we had advised traders to consider a short on Idea Cellular. The stock had moved in a tight range with positive bias. Traders can consider holding the position with stop-loss (Rs 115) mentioned.



Feedback or queries (on positions) may be sent to blfuturesoptions@gmail.com by Sunday noon. Replies will be published on Monday.

Published on April 20, 2013

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