Technical Analysis

SAIL: Selling put option pays

KS Badri Narayanan | Updated on September 15, 2019 Published on September 15, 2019

 

The long- and medium-term outlook for SAIL (₹33.7) remains weak. The stock finds a crucial support at ₹30. A conclusive close below ₹30 will trigger fresh selling that could take SAIL towards ₹25 level. The stock finds an immediate resistance at ₹37 and the next one at ₹44.5. Only a conclusive close above ₹62.9 will change the medium-term outlook to positive for SAIL. We expect the stock to move in a range with positive bias in the immediate future.

 

F&O pointers: The SAIL September contracts added fresh longs on Friday. Open interests, which had been witnessing a steady decline in the last two weeks, saw a turnaround on Friday by adding 30.24 lakh shares. This signals that traders are willing to take fresh position on SAIL. Option trading indicates a movement in the range of ₹30-35 for SAIL.

Strategy: Traders can consider selling ₹33-strike put. It closed at a premium of ₹0.85. As the market lot is 12,000 per contract, traders will get an initial inflow of ₹10,200. This would be the maximum profit one can earn from this strategy. To gain maximum profit, SAIL has to stay above ₹33 at the time of expiry. However, loss in this strategy is very high. A close below ₹32.80 will start affecting the position.

As the risk is high, this strategy is suitable for traders who can withstand volatility and have deep pockets to meet margin commitments.

Alternatively, traders who are a little conservative can consider selling ₹32-strike put, which closed with a premium of ₹0.55. Maximum profit would be ₹6,600. Hold the positions till expiry.

Follow up: LIC Housing moved on expected lines and had provided profit opportunities to traders.

Published on September 15, 2019
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