Tuesday, February 16, 2016

Tata Motors DVR: Consider a short strangle

Tata Motors DVR (Rs.227), which witnessed a bear assault, managed to hold onto its major support level. The stock now rules at a very crucial level. The bear grip will loosen only if the stock manages to rally above Rs.240. A conclusive close below Rs.205 can drag it down to Rs.165.

F&O pointers: Tata Motors DVR added fresh long positions on Friday. The counter saw accumulation of over 6.88 lakh shares with sharp rise in underlying price. This indicates a positive bias. 

Trading in options indicates that the stock may see resistance at Rs.260.

Strategy: Traders can consider a short strangle on Tata Motors DVR. This can be initiated by simultaneously selling Rs.200-put and Rs.250-call. 

These options closed with a premium of Rs.1.90 and Rs.1.60 respectively. This strategy is for traders who can withstand the market volatility, as the profit is limited to the premium received, which works out to Rs.7,350 (market lot is 2,100 shares per contract). 

But, the loss could be unlimited if the stock moves in one direction. The position will start pinching the traders if Tata Motors DVR moves above Rs.253.5 or below Rs.196.5. Exit if the loss mounts to Rs.4,000.

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