I am holding AU Bank August futures contract bought at ₹762. The stock price is now down drastically from the high of ₹770. Please advise on the price targets for AU Bank futures and when to exit this trade – Vijaykumar M

AU Small Finance Bank (₹717): The stock was moving in the range of ₹735-785 since June. However, last week, it fell below the lower boundary of the range at ₹735. It is currently trading at around ₹717.

Similarly, the August futures of AU Small Finance Bank slipped below the support at ₹730 and is now trading at around ₹715. Ideally, this is a bearish signal.

Besides, the option chain of the stock shows that the put call ratio of August expiry stands at 0.6, indicating more call selling than put selling. Thus, the participants seem to have positioned their trades for a possible price decline.

AU Bank futures has a support at ₹700 and at ₹685. In case the price falls further, the loss can go up considerably. For instance, if the futures drop to ₹685 from the current level, the loss will expand by ₹30,000 given the lot size of 1,000 shares. Also, even if there is a recovery, note that the futures face strong resistance at ₹750 and ₹775. Thus, the profit potential from your purchase price of ₹762 is small.

Considering the above factors, we suggest holding the futures long for now but place a stop-loss below the support at ₹700, probably at ₹690. If you cannot withstand the additional drawdown that you might see because of the likely fall in price, you may exit this trade and look for other opportunities.

Always remember to have a stop-loss when it comes to trading, especially when you trade in derivatives trading.

Send your queries to derivatives@thehindu.co.in

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