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Hindustan Unilever (₹754.6) is ruling at a crucial level. While the stock’s long-term outlook remains positive, as long as it trades above ₹620, in the short term, Hindustan Unilever could move in a narrow range before taking a clear direction.
F&O pointers: The counter shed over 5 lakh shares in open interest positions along with the fall in stock price. Higher build-up of open interest on call options suggests downside pressure for the stock.
Strategy: Traders could consider short straddle on Hindustan Unilever. This strategy is best suited if one expects a narrow movement in the underlying security. The strategy can be adopted by selling 750 call and 750 put options simultaneously. This will result in an initial inflow of ₹15.40/contract, which is the maximum profit one can expect from this strategy. This will translate to ₹7,700 as the market lot is 500 units per contract. To earn the maximum profit, HUL has to settle around ₹750 at the time of expiry.
This strategy is risky as the loss could be unlimited. The position will start pinching the traders if HUL dips below ₹735 or moves above ₹765.
Trades can exit the strategy if the loss mounts to ₹4,750.
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