Technical Analysis

Consider a short strangle on Maruti Suzuki

KS Badri Narayanan | Updated on September 29, 2019 Published on September 29, 2019

The long term outlook for Maruti Suzuki India (₹6,773.1) remains positive, while in the short term, it will remain volatile. Only a close above ₹7,660 or below ₹5,480 will dictate a clear trend for the stock. Till then, Maruti will move in the range with a high bout of volatility. Short-term resistance and support appear at ₹7,010 and ₹5,970 respectively. A close above ₹7,660 could trigger a fresh rally in the stock and lift it towards ₹8,250. Similarly, a close below ₹5,480 could weaken the stock towards ₹4,990.

F&O pointers: The Maruti October futures contract witnessed a steady accumulation of open positions in the last two weeks. During the last series, it recovered from a low of ₹5,830.85 to ₹7,188.95 along with increase in open interests. This signals a positive bias, as traders are willing to hold on to the position. Option trading indicates a ₹6,000-7,500 range.

Strategy: Traders can consider a short strangle strategy on Maruti Suzuki. This can be initiated by simultaneously selling ₹7,600-call and ₹5,800-put. These options closed with a premium of ₹62 and ₹30 respectively. Traders will receive an initial inflow of ₹6,900, which is the maximum profit one can earn. For this to happen, Maruti has to move between the strike prices.

However, this strategy can result in heavy loss if the stock moves violently in any one direction — up or down. A close below ₹5,708 or above ₹7,692 will hurt the position. This strategy is strictly for traders who can withstand wild swings and have enough money to meet margin commitments.

Follow up: Hold ITC October call as recommended.

Published on September 29, 2019
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