Market Strategy

Stock Strategy: RCom to remain under pressure

K. S. Badri Narayanan | Updated on July 07, 2012 Published on July 07, 2012



Reliance Communications (Rs 68.6): Despite remaining resilient in the last few days, the outlook remains negative for Reliance Communications. The stock finds an immediate support at Rs 63. A close below the support could weaken RCom to a fresh low below Rs 60 levels. In that event, the stock could go to Rs 48. The stock finds immediate resistance at Rs 73.5 and the next one at RS 86.5. We expect the stock to remain under pressure in the short-term too.

F&O pointers: The Reliance Communications futures shed over seven lakh shares in open interest on Friday along with fall in share price. Option trading indicates a negative bias. However, unwinding in 65 call indicates that it could act as a support zone.

Strategy: Traders could consider the following strategies: a) buying RCom 65 put that closed at Rs 1.25 on Friday. This strategy is for risk-averse traders. While the maximum loss is the premium paid, the gain could be unlimited if RCom moves down sharply;

b) Traders inkling to take a risk could also consider going short on RCom futures with a stop-loss at Rs 73.5 for an initial target of Rs 63. Traders should bear it in the mind that the risk-reward ratio is not favourable in the strategy. However, if the stock opens on a weak note, traders could keep the stop-loss at Rs 70. The target and stop-loss prices are on underlying equity; and

c) Traders could also consider writing 70 call, which closed at Rs 2.25. While the maximum profit is the premium collected, the loss could be unlimited if RCom surge past Rs 70.

Sun TV (Rs 313.55): The stock surged vertically after touching a low of Rs 220 in early June. However, we expect the rally on the stock to peter out going forward. It now finds resistance at Rs 325, which is very close from current level. The next resistances are at Rs 343 and Rs 376.

On the other hand, if it fails to sustain at current level, the stock has immediate support at Rs 275. A close below Rs 275 will change the medium-term outlook to negative for Sun TV. We expect the stock to touch the support level.

F&O pointers: Both the share price and open interest fell on Friday, indicating that traders are not interested to carry over their position. Options did not see any activity.

Strategy: Consider going short on Sun TV with a stop-loss at Rs 325 (spot price on a closing day basis).

Follow-up: Consider holding the short straddle on IFCI and exit from Sobha Developers, which is almost on the verge of hitting stop-loss.

— K.S. Badri Narayanan

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

Published on July 07, 2012
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