Consider short straddle on IFCI

IFCI (Rs 33.35): The long-term outlook remains negative for IFCI, as long as it stays below Rs 72.70. The stock finds an immediate support at Rs 30.5 and resistance at Rs 35.55. A close above this resistance can lift the stock towards Rs 42.75. On the other hand, a close below the aforesaid support could weaken the stock to Rs 26.75 and even to Rs 24.

F&O pointers: The counter witnessed a rollover of 23 per cent to March series. Option trading signals a positive bias, as calls witnessed unwinding of open interest positions. Cost of carry at 18 per cent also signals bullish bias.

Strategy: As we expect the stock to move in a narrow range ahead of the Budget, constructing short straddle will benefit traders the most. This can be done by selling 32.5-strike of call and put. They closed at Rs 1.65 and Rs 0.6 respectively. Loss will occur if IFCI closes above Rs Rs 34.75 or below Rs 30.25. If IFCI closes at Rs 32.5, traders can book maximum profit. In other words, only over 9 per cent slide or 3.7 per cent gain, will make the position unprofitable.

Short straddle strategy is best suited when one expects the underlying stock to move in a narrow range. Maximum profit in this strategy is the premium collected, i.e., about Rs 18,000 (Rs 2.25*8,000), while the loss could be unlimited. Besides, writing option involves higher margin commitments.

( Note: Feedback or queries (on positions) may be sent to f&o@thehindu.co.in or blfuturesoptions@gmail.com by Sunday noon. Replies will be published on Monday.)