Indiabulls Real Estate (Rs 54.6): The long-term outlook remains negative for Indiabulls Real Estate as long as the stock stays below Rs 155. The short-term trend has also turned weak for the stock after it slipped below Rs 60. It now finds immediate support at Rs 46, which is a crucial level. A close below Rs 46 will trigger a fresh slide on the stock. In that event, Indiabulls Real Estate is vulnerable to test new lows below Rs 40. Immediate resistance appears at Rs 64 and only a close above Rs 76.5 will negate the current bearish trend for the stock.

F&O pointers: Indiabulls Real Estate October futures witnessed unwinding of open interest positions along with fall in share price. The counter shed 3.2 lakh shares in open interest. Indiabulls Real Estate futures premium now narrowed to less than a rupee. Option trading also indicates a negative bias for the counter as call options accumulated open interest positions, indicating the strong emergence of call writers.

Strategy: We advise traders to consider a bear-call spread on Indiabulls Real Estate. The bear-call spread option trading strategy is employed when analysts thinks that the price of the underlying asset will go down moderately in the near-term. This strategy can be initiated by selling the 60-strike call and simultaneously buying the 55-strike call that closed at Rs 2.6 and Rs 4.4 respectively.

The maximum gain attainable using this options strategy is the credit (Rs 1.8) received upon entering the trade, which works to about Rs 7,200, as the market lot is 4,000 units. To reach the maximum profit, the stock price needs to close below the strike price of the lower striking call, which is Rs 55.

If the stock price rises above the strike price of the higher strike call (60) at the expiration date, then the strategy suffers a maximum loss, which equals to the difference in strike price between the two options minus the original credit taken in when entering the position. In this case, it will be Rs 12,800.

Though the risk-reward ratio is not skewed in favour of the strategy, we still believe that this bear-call spread has bright profit potential. This strategy is for traders who can withstand the risks of wild swings in the underlying.

Alternatively risk-averse traders could consider buying 50-strike put, which closed at Rs 2.45, where the maximum loss will be the premium paid.

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

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