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While the long-term outlook remains negative for Reliance Capital (₹383), in the short-term, the stock may see a bounce back. Reliance Capital finds an immediate resistance at ₹413 and immediate support at ₹355, which is a very crucial level. A close below this level could change the outlook negative.
F&O pointers: Reliance Capital May futures added fresh longs on Friday, though the stock ended on a flat note. Option trading indicates that Reliance Capital could face a strong resistance at ₹400. On downside, it may find it difficult to breach ₹360.
Strategy: Traders could consider short strangle on Reliance Capital. This can be initiated by selling RCAP-340-put and 430-call options. These options closed with a premium of ₹2.75 and ₹2.7 respectively. This strategy will yield an inflow of ₹8,175 (market lot of 1,500 shares per lot) and that would be the maximum profit one can earn from this strategy. For that, RCAP has to settle between ₹340 and ₹430 at the time of expiry.
Loss could be unlimited if the stock swings wildly in one direction. The position will affect the traders adversely if the stock moves above ₹432.7 or below ₹337.25. Besides, selling options involve huge margin commitments. So this strategy is for traders who can withstand wild swings. We advise traders to exit from the position if the loss mounts to ₹5,000.
Follow-up: Hold SKS Microfinance.
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