Technical Analysis

Consider short straddle on SBI

KS Badri Narayanan | Updated on January 24, 2018 Published on March 29, 2015


The long-term outlook remains positive for the stock of State Bank of India (₹263.5). It finds immediate support at ₹243 and resistance at ₹280. Key hurdle for the stock is at ₹309. A close above this level can trigger a fresh rally in the stock.

F&O pointers: Despite strong gains on Friday, SBI April futures witnessed unwinding of open interest positions. It shed over 30 lakh shares amidst 3 per cent gain in the futures price, indicating negative bias. Option trading indicates limited downside, as puts witnessed huge accumulation of open positions, signalling the emergence of put writers.

Strategy: Traders could consider short strangle on SBI. This can be initiated by selling ₹285-call and ₹245-put. They closed with a premium of ₹4.15 and ₹2.75, respectively. This strategy will entail an initial inflow of ₹8,625, which could be the maximum profit one can earn. For that to happen, SBI has to settle between the strike prices at the time of expiry. However, loss could be unlimited if SBI moves in one direction sharply. A close below ₹238 or above ₹292 will start to pinch the positions. Long-term investors could even consider rolling over SBI long futures keeping a stop-loss at ₹243 (spot price, on a closing day basis). A target of ₹373 or even ₹408 is not ruled out.

Follow-up: Hold the call positions on Tata Steel.

Published on March 29, 2015
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