Technical Analysis

Future Perfect: Consider a short strangle in DLF

KS Badri Narayanan | Updated on August 25, 2019 Published on August 25, 2019

 

The stock of DLF now rules at a crucial level. On Friday, the stock bounced back, gaining 5 per cent, to close at a key support level of ₹152. The stock has to sustain the level, as one more conclusive fall below ₹152 could drag DLF to ₹112. It finds an immediate resistance at ₹172, which is slightly far away from the current level.

F&O Pointers: The counter witnessed a roll- over of about 12 per cent to September series. However, a lot of long positions got squared due to a sharp fall on Thursday as captured by the spot-future price. DLF September futures trade at ₹152.80 against the spot price of ₹152.60. This signals that the stock may not gain much. Option trading indicates that the counter might face a stiff resistance at ₹160.

 

 

Strategy: Traders could consider a short strangle in DLF using September contracts. This can be done by simultaneously selling the ₹130-put and the ₹175-call. They closed with a premium ₹3.25 of ₹3, respectively. Traders will earn an inflow of ₹6.25/contract. As a marker lot is 2,800 shares per contract, traders will get ₹17,500, which would be the maximum profit in the strategy.

For that to happen, DLF has to settle between ₹130 and ₹175. A close above ₹181.25 or below ₹123.75 will start pinching the traders.

We advise traders to hold the position for three weeks. As selling options is very risky, this strategy is for traders who can withstand wild swings.

Follow-up: Stop-loss would have triggered on Tata Motors DVR.

Published on August 25, 2019
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