Technical Analysis

Short strangle on L&T

KS Badri Narayanan | Updated on January 23, 2018 Published on April 12, 2015


The long-term outlook for L&T remains positive. It finds immediate resistance at ₹1,796 and the next crucial one at ₹1,828. A close above ₹1,828, can trigger a fresh rally in L&T and lift the stock to ₹1,967.

On the downside, the stock finds immediate support at ₹1,663. A conclusive close below this can drag the stock lower to ₹1,573. In the short term, we expect L&T to move within a narrow range.

F&O pointers: The L&T April futures added fresh long positions on Friday, signalling positive bias. Option trading indicates a range-bound movement between ₹1,700 and ₹1,800.

Strategy: We advise a short strangle strategy on L&T, given the narrow movement in the underlying stock. This can be initiated by selling 1,660 put and 1,820 call. They closed with a premium of ₹9.45 and ₹22.35 respectively. This will entail an initial inflow of ₹7,950 (market lot 250 shares per contract). This will also be the maximum profit under this strategy. For that to happen, L&T has to settle between ₹1,660 and ₹1,820 at the time of expiry.

Loss can be be unlimited in this strategy, if L&T moves sharply in either one direction — up or down. A close above ₹1,850 or below ₹1,630 will start to pinch traders.

Published on April 12, 2015
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