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The outlook for the Power Grid Corporation of India (₹206) appears bright. The stock finds an immediate support at ₹193; it could reach a new peak. If the current bull trend continues, the stock could touch ₹252. Only a close below ₹175 will change the long-term bullish outlook for Power Grid. We expect the stock to gather steam in the days ahead.
F&O pointers: Power Grid July futures have been witnessing a steady build-up in open interest along with underlying’s up-move. From 7.52 lakh shares on June 17, open interests now stand at 3.1 crore shares, signalling long-term investors’ interest in the stock. Option trading indicates a range of ₹190 and ₹210.
Strategy: With the Budget around the corner, we advise traders to consider a long strangle on Power Grid. This can be constructed by buying the ₹212.50-call and the ₹200-put. As these options closed with a premium of ₹3.25 and ₹2.55, respectively, traders will pay ₹5.8/contract to enter into the strategy.
The maximum loss would be the premium paid, which is ₹23,200 (market lot: 4,000 shares) and it will happen if the Power Grid stock is stuck in a narrow range between ₹212.50 and ₹200. However, profit potentials are unlimited if the stock moves in a single direction, ie, either up or down. A close above ₹218.30 or below ₹194.20 will turn the position profitable. We advise traders to hold the positions for at least three weeks; risk-averse traders could stay away from this strategy.
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