Technical Analysis

Consider short-strangle on HDIL

KS BADRI NARAYANAN | Updated on August 03, 2014 Published on August 03, 2014

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After its recent rally from ₹65 over the past three months, HDIL has corrected slightly in the last two weeks. The stock has moved within the ₹Rs 80-100 range. HDIL finds immediate support at ₹84 and resistance at ₹98.

We expect the stock to move broadly within this range, before signalling a clear direction.

A close above ₹103 or below ₹84 will decide the stock’s direction of movement.

F&O pointers: Option trading indicates ₹80 level on the downside and ₹100 on the upside.

Strategy: Traders can consider a short-strangle strategy, which can be initiated by selling ₹105 call and ₹75 put. They closed at a premium of ₹1.55 and ₹0.80, respectively.

The maximum profit in this strategy is the premium collected, which works out to ₹18,800.

This will occur if HDIL settles between the strike prices at the expiration date. However, the loss can be unlimited if HDIL swings wildly in any one direction.

The position will turn negative if HDIL moves below ₹72.65 or above ₹107.35. Consider holding the position for two weeks. Traders can exit the position if the loss mounts to ₹7,500.

Follow-up: Last week, we advised traders to consider a bear call spread on Tata Motors. Traders can hold their position, as the stock moved on expected lines.

Published on August 03, 2014
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