Cairn India: The outlook turned negative for Cairn India ever since it started the decline from its peak at Rs 396. Now, we expect the stock to move in a narrow range before taking a clear direction. Cairn India is likely to move in Rs 320-360 range. However, the long-term outlook remains positive as long as it stays above Rs 320. One more conclusive close below Rs 336 will take Cairn India towards its key support level.

F&O pointers: Cairn India futures witnessed a rollover of about 73 per cent. Option trading indicates narrow movement as both puts and calls accumulated open interest positions in April series. Higher build-up of open interest positions in 340 strikes suggests Cairn India is likely to hover around this level. The 360-strike call has the highest number of open interest positions, signalling that the stock will find it very difficult break past the level.

Strategy:  Traders can consider short straddle on Cairn India using 340 strike. The 340 call and put closed on Friday at Rs 8.4 and Rs 16.6 respectively. A key advantage in the strategy is time value. The market is closed for two days (Thursday and Friday) this week.

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. So this strategy is for traders who can withstand wild swings.

Traders can consider holding the position till expiry. Maximum profit will occur if Cairn India settles just around Rs 340 at the time of expiry. Since the market lot is 1,000 units for a contract, the maximum profit could be around Rs 25,000, based on Friday's close. Traders will face losses if the stock closes above Rs 365 or below Rs 315 at the time of expiry.

Tech Mahindra: The stock has been moving in a broader range of Rs 775-575 for about a year. Only a break from this range will set a clear direction for the stock. However, it is unlikely to break this range anytime soon. The immediate supports are placed at Rs 695 and Rs 640. The stock finds immediate resistance at Rs 745. 

F&O pointers: Tech Mahindra April futures witnessed unwinding of long positions on Friday. Rollover of open interest stood at 61 per cent. 

Strategy: Consider going short on Tech Mahindra keeping a stop-loss at Rs 745 for an initial target of Rs 640. If the stock closes below Rs 695, traders could consider shifting the stop-loss to that level. Market lot for Tech Mahindra is 500 .

  Follow-up: Last week, we had recommended short strangle on Bharti Airtel and JP Associates. Both of them are in-the-money. Traders can continue to hold on to these strategies till expiry as mentioned. We expect the stocks to move in the range we had mentioned.

Note: Feedback or queries (on positions) may be sent to  f&o@thehindu.co.in,blfuturesoptions@gmail.com  by Sunday noon. Replies will be published on Monday.

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