Technical Analysis

STOCK STRATEGY - Consider shorting Coal India

K.S. Badri Narayanan | Updated on August 27, 2011 Published on August 27, 2011

Coal India (Rs 362): The outlook for Coal India has turned negative. It now finds immediate support at Rs 353 and a crucial one at Rs 308. A fall below that would change the long-term outlook to negative. In that event, it could create a new low breaching its all-time high low of Rs 289.

The stock finds an immediate resistance at Rs 388. Only a close above Rs 413 would change the outlook to positive for Coal India.

F&O pointers: Coal India is a recent entrant to the F&O segment. The stock added fresh long positions on Friday; futures added fresh short positions. Call options were relatively active and saw higher accumulations of open interest. Put options also added open position but trading volumes were very low.

Strategy: Consider going short on Coal India September futures with a tight stop-loss at Rs 388 (spot price on a closing day basis) for an initial target of Rs 308. Shift the stop loss to Rs 353 once it dips below that level. Market lot of Coal India is 1,000.

Alternatively, traders can consider writing 380 Sept call, which closed around Rs 8.70 on Friday. Maximum profit in the strategy is the premium collected (i.e. 8.7 * 1,000 market lot), while loss could be unlimited if Coal India surges sharply. Besides, writing a call involves margin commitments. So this strategy is for traders who can afford to bear those risks. Hold this position for at least two weeks.

ABB: The medium-term outlook turned positive for ABB. The stock now finds immediate resistance at Rs 895 and support at Rs 752. The stock could hit a new peak if ABB manages to close above Rs 895. On the other hand, a close below Rs 752 could drag it to Rs 642.

F&O pointers: The stock added fresh long positions on Friday. Options are not active.

Strategy: Traders can consider going long on ABB for an initial target of Rs 895 with a stop loss at Rs 752.

Follow-up: Last week, we had advised traders to go short on L&T as well as writing 1,650 Sept put. Trades can continue to hold these strategies with mentioned stop losses.

We had also advised a short strangle on Suzlon in the August series. However, the position closed in the negative.

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

Published on August 27, 2011

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