Technical Analysis

Consider bear put spread on RIL

KS Badri Narayanan | Updated on May 12, 2019 Published on May 12, 2019

Though the long-term outlook for Reliance Industries (₹1,246) remains positive, in the short term, it may remain volatile with a negative bias.

The stock faces an immediate support at ₹1,220, and a close below that will drag it towards ₹1,108 or even to ₹1,027.

A close below the latter will alter even the long-term bullish view. On the other hand, a close above ₹1,372 will trigger a fresh rally.

F&O Pointers: Open interests remain stable at around 4.2 crore despite the stock remaining under pressure in the past few days.

Options trading indicates a range of ₹1,200-1,400 for the stock.

Strategy: Traders could consider a bear put spread on RIL. This can be done by buying the ₹1,260 put and simultaneously selling the ₹1,220 put. These options closed with a premium of ₹50.5 and ₹33.05, which means one has to shell out ₹17.45 a contract.

The maximum loss would be ₹8,725 as the market lot is 500 units, and that will happen if the stock rises and closes above ₹1,260 at the time of expiry.

A maximum profit of ₹11,275 is possible if RIL closes below ₹1,220.

We advise traders to hold the position till expiry. Traders should bear it in mind that selling options costs higher margin commitments.

Follow up: Hold Ashok Leyland position

Published on May 12, 2019
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