Technical Analysis

HDIL to trade in a range

KS BADRI NARAYANAN | Updated on July 13, 2014 Published on July 13, 2014

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The long-term outlook remains negative for Housing Development and Infrastructure (HDIL) that closed at ₹89.7. Only a close above ₹120 will change the medium-term outlook to positive. The immediate resistance is at ₹103, while it finds key support at ₹87. We expect the stock to move within this range. A close above ₹120 could lift the stock to ₹145, and a close below ₹87 could drag it down to ₹75.

F&O pointers: The counter added heavy short positions on Friday which aggravated the slide. Option trading indicates a range of ₹90-110.

Strategy: Traders can consider a short strangle on HDIL. This can be initiated by selling ₹100-call and ₹80-put on HDIL. They closed with a premium of ₹1.65 and ₹1.5 respectively. The short strangle strategy is considered when the underlying equity is expected to move in a narrow range in the near term. Traders will receive an initial payment of ₹3.15 a contract (or ₹25,200), which will be the maximum profit in the strategy. For that to happen, HDIL has to settle between ₹100 and ₹80 at the time of expiry.

However, if HDIL swings sharply in either direction — up or down — the strategy will start making losses. A close above ₹101.65 or below ₹78.5 will hurt the position.

Traders can exit their position if the loss mounts to ₹8,000. Since the market is volatile currently, this strategy may be risky. Besides, selling options involve high margin payments.

Follow-up: Last week, traders were advised to consider long strangle on Bank Nifty. The position is in profit zone. Traders can consider holding the position as suggested.

Published on July 13, 2014
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