Stock Strategy: Consider shorting ICICI Bank, Dr Reddy's Lab

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



ICICI Bank (Rs 866): After recent recovery from Rs 650 level, ICICI Bank has been struggling to move past Rs 975. The stock faces strong support at Rs 847. A close below that will trigger a fresh sell-off. In that event, it has supports at Rs 765 and Rs 705. On the other hand, a close above Rs 975 will take ICICI Bank to Rs 1,046 and even to Rs 1,115.

The immediate-term outlook remains negative for ICICI Bank. The RBI is scheduled to meet on April 17 to decide on key rates. It is widely expected that the apex bank might cut interest rate.

A 25 basis point (BPS) cut has already been discounted by market participants . If RBI maintains a status-quo or 25 basis points cut, then the banking stocks will come under fresh selling pressure. On the other hand, a 50 BPS cut may keep these stocks firm with a marginal positive bias. 

F&O pointers: The ICICI Bank April futures added fresh short positions on Friday. It closed at Rs 866 against the spot close of Rs 862. Option trading indicates negative bias as calls witnessed fresh accumulation even as the puts, particularly 800, 840 and 860 strikes, witnessed unwinding of open interest.

Strategy: Consider going short on ICICI Bank April futures with a tight stop-loss at Rs 880 (spot price on a closing day basis) for an initial target of Rs 765. Stop-loss can be shifted to Rs 847 if ICICI Bank closes below that level. Market lot of ICICI Bank is 250.

Traders can also write 860 call on ICICI Bank, which closed around Rs 30 on Friday. This strategy is for traders who can bear the risk, as the loss can be unlimited if ICICI Bank closes above Rs 860. Maximum profit occurs, if the stock closes below Rs 860 at the time of expiry.

Dr Reddy's Lab (Rs 1,740): The long-term outlook remains positive for Dr Reddy's Lab. However, after its recent sharp gains, the stock might face some resistance. It has immediate resistance at Rs 1,760 and support at Rs 1,638. A close below the support could weaken the stock to Rs 1,540.

On the other hand, a close above the resistance will ensure that Dr Reddy's Lab will register a new peak above Rs 1,855.

In that event, the stock could easily go to Rs 2,015 (according to Fibanocci projections). As long as the stock rules above Rs 1,265, the long-term outlook remains positive.

F&O pointers: Traders unwound their long positions on Dr Reddy's futures to book profit. Options are not active. 

Strategy: Traders can short Dr Reddy's Lab with a stop-loss at Rs 1,760 for an initial target of Rs 1,638.

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.

Published on April 14, 2012
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