Technical Analysis

Consider put-spread on Reliance Capital

K S BADRI NARAYANAN | Updated on January 08, 2018 Published on October 08, 2017

The outlook for Reliance Capital (₹555.65) is bearish. The stock faces a crucial support at ₹525 and a conclusive close below this level will trigger a sharp fall in the stock. It could find next support at ₹ 442.

A close above ₹584 will change the current bearish outlook on the stock and a close above ₹610 will change the outlook positive for Reliance Capital. We expect the stock to pursue downtrend in the short and medium-term.

F&O pointers: Reliance Capital October futures added 10.83 lakh shares on Friday and the counter has been witnessing a steady build of open positions through the week. Option trading indicates that the stock could move in ₹520 and ₹600 range.

Strategy: We advice traders to consider the following bear-put strategy using options. This can be initiated by selling the ₹520-put and simultaneously buying the ₹540-put of Reliance Capital. They closed with a premium of ₹6.70 and ₹12.75 respectively.

As the market lot is 1,500 shares, this strategy will cost traders ₹9,075. Maximum loss would be the premium paid (₹9,075) and that will happen if Reliance Capital rises sharply or stays above ₹540 level. A maximum profit of ₹20,925 is possible if the stock declines to ₹520. We advice traders to hold the position till expiry.

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Published on October 08, 2017
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