Technical Analysis

Crompton Greaves to move in a sideways manner

KS BADRI NARAYANAN | Updated on July 20, 2014 Published on July 20, 2014

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Despite the sharp surge last week, the long-term outlook still remains weak for the stock. Only a close above ₹268 will make the long-term outlook positive. The stock is now crucially placed. It finds immediate support at ₹195 and resistance at ₹240.

A close above the resistance level will take the stock towards ₹286, while a close below ₹195 will change the medium-term outlook negative, too. In such an event, Crompton Greaves may touch ₹168.

F&O pointers: The counter witnessed a sharp surge in open interest positions on Thursday and Friday, indicating heavy accumulation of long positions. Option trading indicates a range of ₹200-230 for the stock.

Strategy: Traders can consider short strangle strategy on Crompton Greaves. This can be initiated by selling ₹230 call and ₹190 put. They ended with a premium of ₹2.60 and ₹1.45, respectively.

The maximum profit in the strategy is the premium collected, which works out to about ₹8,100 (The market lot of Crompton Greaves is 2,000 shares per contract). For that to happen, Crompton Greaves has to settle between the strike prices — ₹190 and ₹230. However, the loss in this strategy is unlimited if the stock moves either up or down. A close below ₹186 or above ₹234 will start pinching the position.

Published on July 20, 2014
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