Technical Analysis

Consider short strangle on BHEL

KS Badri Narayanan | Updated on January 24, 2018 Published on February 08, 2015


The medium-term outlook for BHEL is positive, but in the short term, the stock is expected to move in a narrow range of ₹215 and ₹290. Key resistances are at ₹329 and ₹380. A close above these levels will make the long-term outlook positive. A close below ₹215 will change the long-term outlook to negative.

F&O pointers: The BHEL February futures witnessed unwinding of long positions along with fall in share price, pointing to a negative bias. Option trading, however, indicates limited downside as open interest is high for ₹260-strike put. On the call side, ₹300 and ₹290 strikes saw maximum accumulation of open interests.

Strategy: Traders can consider short strangle on BHEL. This is the best strategy if the narrow movement of the underlying stock is taken into consideration.

This strategy can be employed by selling ₹240 put and ₹290 call. They closed with a premium of ₹2.85 and ₹3.2 respectively. Market lot is 1,000 units a contract. The strategy will ensure an initial inflow of ₹6,050, and that is the maximum profit one can expect. For maximum gains, BHEL has to settle between ₹240 and ₹290 at the time of expiry. But the loss could be unlimited if BHEL swings wildly in either direction. A move above ₹296 or below ₹234 will start pinching the position. This strategy is only for those who can withstand higher volatility.

Published on February 08, 2015
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