Market Strategy

Consider short strangle on IDFC

K.S. Badri Narayanan | Updated on July 14, 2012 Published on July 14, 2012


IDFC (Rs 137): The long-term outlook remains negative for IDFC, as long as it stays below Rs 206. However, in the medium-term, the stock will move in a narrow range. The stock finds crucial resistance at Rs 154-157 band and support at Rs 110-112 range. In the immediate-term, the stock is likely to move in a range between Rs 130 and Rs 142.

F&O pointers: The IDFC futures shed over five lakh shares in open interest on Friday. Option trading indicates a neutral view as both call and put added to open interest. Action was centred around only in 130 and 140 strikes.

Strategy: Traders could consider short strangle on IDFC using 130 put and 140 call. They closed at Re 1 and Rs 2.6 respectively. In this strategy, while the maximum profit is the premium collected, loss could be unlimited if IDFC swings wildly in one direction.

Short strangle is best suited when one expects the underlying stock to move in a narrow range. Maximum profit is the premium collected, which works out to about Rs 7,200. Besides, writing option involves higher margin commitments. This strategy is suggested only for traders who can withstand wild swings and who can hold it for at least two weeks.

Losses will increase, if IDFC closes below Rs 127.5 or above Rs 143.5 at the time of expiry.

Follow-up: We had recommended three strategies for RCom expecting a weak trend for the stock. Traders with respective risk taking capabilities could consider holding these positions. We had also recommended shorting of Sun TV with a stop-loss at Rs 325. It moved on expected lines. The stop-loss could be revised to Rs 313.

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

Published on July 14, 2012
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