The long-term outlook for Ashok Leyland ( Rs.97.5) remains positive, as long as it stays above Rs.76. The stock finds immediate support at Rs.89.3 and a close below this level can drag it lower to Rs.84.
If the current momentum sustains, the stock may breach its all-time of Rs.99.65 — which it registered in August this year. In such a situation, Ashok Leyland can go up to Rs.120. However, the stock is likely to moderate after rising sharply in the last few days.
F&O pointers:
Futures trading on Ashok Leyland suggests positive bias, as traders added more positions on the long side. Option trading, however, indicates a strong resistance at Rs.100.
Strategy:
Traders can consider short strangle on Ashok Leyland. This can be initiated by selling 107.50 call and 87.50 put of Ashok Leyland. They closed with a premium of Rs.1 and Rs.0.70 paise respectively.
This strategy will imply an initial inflow of Rs.11,900, which is the maximum profit one can earn. For that to happen, Ashok Leyland must close between Rs.107.50 and Rs.87.50.
Loss, however, could be unlimited in this strategy. A close above Rs.109.20 or below Rs.85.8 will start hurting the position. This strategy is for traders who can withstand volatility.
We advise traders to review the position every week. They should also consider exiting the position if the loss mounts to Rs.6,500.
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