Technical Analysis

Consider bull put spread on RCom

KS BADRI NARAYANAN | Updated on August 17, 2014 Published on August 17, 2014

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After hitting a high of ₹157 in June, the stock has been on a correction mode. Reliance Communications (RCom at ₹120.7) is likely to move within a narrow range before taking a clear direction. However, the stock could see high volatility over the next few days. Immediate support is at ₹113 and resistance at ₹128. The next crucial resistance is at ₹142. A close below ₹113 will change the medium-term outlook negative. But a close above ₹142 can take the stock higher to ₹185.

F&O pointers: The RCom August futures shed over 8.4 lakh shares in open interest on Thursday. Option trading suggests negative bias.

Strategy: Consider bull put spread on RCom. This can be initiated by selling the August ₹125 put and buying ₹120 put. They closed at ₹6.05 and ₹ 3.3 respectively. This entails a net inflow of ₹5,500 (₹2.75 a contract), which is the maximum it can profit from this strategy. This will happen if RCom settles at or above ₹125. The maximum loss in this strategy will be ₹4,500 (₹2.25/contract), for which the underlying stock has to close at or below ₹120.

Traders can exit this strategy if RCom decisively closes above ₹128.

Published on August 17, 2014
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