Technical Analysis

Short strangle on NTPC

KS BADRI NARAYANAN | Updated on January 23, 2018 Published on May 17, 2015

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The long-term outlook for NTPC (₹136.1) remains negative. However, in the short term, it is likely to move in a narrow range. It finds near-term resistance at ₹142 and support at ₹126 and the next one at ₹117. A close above the immediate resistance has the potential to lift the stock towards ₹166.

F&O pointers: NTPC witnessed accumulation of short positions on Friday. The NTPC futures added over 13.4 lakh shares in that session. Options trading indicates a support at ₹135 and then at ₹130.

Strategy: Consider short strangle on NTPC. This can be initiated by selling call of ₹140 strike and put of ₹130 strike. The call closed with a premium at ₹1.70 and put at ₹0.85.

Short strangle strategy is best suited when one expects narrow movement of the underlying stock. While this strategy entails only a limited profit to the extent of premium collected, loss could be unlimited if NTPC swings wildly in any one of the directions, that is, either up or down.

Maximum profit will occur if NTPC closes between ₹140 and ₹130 at the time of expiry. In that event, the profit would be about ₹5,100. Traders are advised to consider this strategy till expiry. The position will start pinching traders if NTPC moves above ₹143 or closes below ₹127.

Published on May 17, 2015

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