Technical Analysis

IFCI likely to move in narrow range

K.S. Badri Narayanan | Updated on March 05, 2011 Published on March 05, 2011

IFCI (Rs 52.3): The stock has been moving in a narrow range of Rs 46-54 for quite some. The stock finds its major resistance at Rs 59 and a key support at Rs 47.

Only a break from this range would set a clear direction for the stock. The outlook for IFCI (market lot 4,000) appears neutral only as long as it moves in that tight band.

F&O pointers: The IFCI March futures closed at negligible premium on Friday. It also saw only marginal accumulation in open interest. Notably, accumulation of open interest was not steady last week also. Option trading too signal neutral movement for IFCI, as 50-strike of call and put saw only a marginal accumulation in open interest.

Strategy: Traders can consider going short on IFCI with a stop-loss at Rs 54 for a target of Rs 49. Alternatively, traders can consider short straddle on IFCI using 50-strike. The 50 call closed on Friday at Rs 4 and the put ended at a premium of Rs 1.35.

Traders may note that this strategy has a limited profit potential only, even though the associated risks are unlimited. This strategy is adopted when one considers that the underlying securities will experience a little volatility in the near term. Note that shorting or selling options also involve higher margin commitments. The strategy therefore is best suited only for high-risk appetite traders. While the maximum profit is Rs 5.35 (total premium) per contract in this strategy, the loss could be unlimited should IFCI makes a unidirectional move – either up or down.

Traders can also consider writing 55 call, which ended at Rs 1.5. While the maximum profit is the premium collected, the loss could be unlimited if IFCI moves past Rs 55. Here again, the trade involves a high-risk appetite.

Voltas (Rs 157): The long-term outlook remains negative for Voltas as long as it stays below Rs 201. The immediate-term outlook also remains negative despite the stock ruling near its 52-week low level. The stock finds a crucial resistance at Rs 168 and the next one at Rs 184. The stock finds support at Rs 142 and at Rs 126.

F&O pointers: The Voltas March futures added fresh short positions on Friday; open interest jumped close to 17 per cent Friday. The Voltas futures is quoting only at a marginal premium. This indicates lack of traders' interest in the counter.

None of the options witnessed any trading in Voltas. Market lot is 500 shares per contract.

Strategy: Consider going short on Voltas futures with a tight stop-loss at Rs 168 (spot price on a closing day basis) for an initial target of Rs 148.

Follow-up: Last week, we had advised traders to consider a pair strategy using Reliance Industries and Suzlon. As advised, traders can hold on the strategy for at least one more week. We had also advised traders to go short on Jet Airways. Though the stock was showing some firmness, it did not hit our stop loss. So traders could continue to hold on to Jet Airways for recommended targets.

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

Published on March 05, 2011

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