Technical Analysis

Future perfect: BoI: Selling put may pay

KS Badri Narayanan | Updated on September 01, 2019 Published on September 01, 2019

 

The outlook for Bank of India remains bearish. The stock finds an immediate support at ₹55.10 and a major one at ₹44. A close below the latter will trigger a fresh downfall for the stock, though the chances for that appear remote. Only a close above ₹86.95 will alter the current negative outlook and only a conclusive close above ₹125 will change the outlook to positive. An immediate resistance appears at ₹75.

F&O pointers: BoI September futures have been witnessing a steady addition in open interest positions even as the stock was hovering in the band between ₹60 and ₹70 in the past one month, signalling a neutral view with a positive bias. Option trading indicates that the stock could move in a ₹55-75 range.

 

 

 

Strategy: Traders can consider shorting put on Bank of India. This can be done by selling the ₹55-put, which closed with a premium of ₹1. Traders will receive ₹6,000 for the position, as the market lot is 6,000 shares per contract.

This strategy is for traders who have deep pockets and can withstand wild swings, as the premium received (₹6,000) is the maximum profit one can earn. To achieve maximum gains, the shares of Bank of India have to stay above ₹55 at the time of expiry. However, loss could be unlimited if it slumps drastically. We advise traders to hold the position for at least two weeks. A close below ₹54 will start hurting the position. Traders could exit from the position if the loss mounts to ₹4,500.

Follow-up: Traders can continue to hold the short strangle in DLF.

Published on September 01, 2019
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