The long-term outlook for NTPC (Rs.136.1) remains negative. However, in the short term, it is likely to move in a narrow range. It finds near-term resistance at Rs.142 and support at Rs.126 and the next one at Rs.117. A close above the immediate resistance has the potential to lift the stock towards Rs.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 Rs.135 and then at Rs.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 Rs.1.70 and put at Rs.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 Rs.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 Rs.127.
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