Technical Analysis

Bet on Hindalco's narrow range

KS BADRI NARAYANAN | Updated on January 20, 2018 Published on June 12, 2016

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The short-term trend turned positive for Hindalco (₹115). If the current trend sustains, the stock could reach ₹135. The immediate support for Hindalco appears at ₹101.5 and a close below this level will alter the current positive outlook and a close below ₹87.3 confirm negative trend. A close above ₹152 could instigate a secular bull rally on the stock.

F&O pointers: Hindalco June futures shed 5.35 lakh shares in open interest despite the underlying’s handsome gains of about 4 per cent on Friday. Option trend indicates that the stock could move in the ₹100-115 range. High activity on the puts side indicates the stock may not fall in a hurry.

Strategy: Traders can consider a short strangle on Hindalco. This can be constructed by selling ₹100-strike put and ₹125-strike call. These options closed with a premium of ₹0.50 and ₹1 respectively on Friday. That means, through this strategy, traders will receive an inflow of ₹1.5 a contract or ₹7,500. This will be the maximum one can earn. But for that to happen, the stock should settle between the strikes (₹100 and ₹125) at the time of expiry.

However, loss could be unlimited in this strategy if Hindalco travels violently in any one of the directions, that is, up or down.

A close below ₹98.5 or above ₹126.5 will start pinching the trader’s pocket. So, this strategy is strictly for traders who can understand the risk and withstand wild swings. Hold the position till the expiry. Besides, selling options involve higher margin commitments. Traders could exit from the position if the loss mounts ₹4,000.

Published on June 12, 2016
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