The long-term outlook will remain positive for Arvind (Rs.272.55), as long as it stays above Rs.242. In the short term, the stock may move in a narrow range with a positive bias. It finds immediate resistance at Rs.291 and support at Rs.255. However, a close below Rs.222 will change the outlook to negative for the stock.
The contract added 3.88 lakh shares in open interest on Friday. In fact, Arvind’s October contract has been witnessing accumulation of open interest throughout last week amidst price fall.
This suggests build-up of short positions. Option trading in calls indicates that the stock could face a strong resistance at Rs.300.
Traders can consider a bull-call spread on Arvind. This strategy is best suited provided the immediate-term outlook is positive.
Here, the strategy can be executed by selling Rs.290-call and simultaneously buying Rs.280-call, which closed with a premium of Rs.7 and Rs.10.85 respectively.
This strategy will result in an outflow of Rs.3.85 per contract (Rs.3,850), which will be the maximum loss one can suffer. For that to happen, Arvind has to close below Rs.280.
A maximum profit of Rs.6.15 per contract (Rs.6,150) is possible, if Arvind closes at or above Rs.290 at the time of expiry. This strategy is break-even at expiration if the stock price rules at Rs.283.85. We advice traders to hold the position till October expiry or the underlying stock hits Rs.290 or the loss mounts to Rs.1,000.