The short-term outlook remains cautious for the stock of Tata Steel (₹114.25). Immediate support levels are at ₹107 and ₹95. A close below the latter will change the bullish outlook on the stock to neutral. On the other hand, resistance levels are at ₹122 and ₹137. A close above the latter will trigger a fresh rally in the stock that could lift Tata Steel’s share price to ₹160.
However, we expect the stock to move in a narrow range with the downward bias in the short term.
F&O pointers: Tata Steel June futures closed at ₹114.60 against the spot close of ₹114.25. This marginal premium indicates traders are not willing to carry over their positions expecting a volatile road ahead. Option trading indicates that the stock could move within ₹110 and ₹120, as respective put and call options have witnessed concentration of open interests.
Strategy: Consider buying a 114-put on Tata Steel. The option closed with a premium of ₹1.95.
As the market lot is 5,500 shares, this trade will cost ₹10,725, which will be the maximum loss. This will happen if Tata Steel closes above ₹114 on expiry. On the other hand, profit potentials are high, if the stock slips below ₹114 swiftly.
The break-even point is ₹112.05 and any fall below that will turn the position profitable.
Hold the position with a stop loss of ₹0.65 (premium) and aim for a target of ₹4. Stop-loss can be shifted to ₹1.6 if the premium rises to ₹3.
Follow-up: Against our expectations, ITC moved sharply higher. We did not mention any stop-loss on the strategy. Those who are holding the put option can continue to hold.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading