I’ve bought one lot of September expiry 1900-call option on Tata Communications. Could you please tell me the outlook of the stock in the coming weeks? Should I hold the option or exit?

Rana

Tata Communications (₹1,927.7): The stock established the latest leg of uptrend in early June by taking support at ₹1,220. While there has been intermittent price corrections, the broader trend remains bullish. The price action indicates that the stock is likely to appreciate further. Before the end of the current expiry, we expect the stock to touch ₹2,000. But after reaching this level, there might be a price correction. 

Hence, we recommend holding the 1900-call option, which closed at ₹55.3 on Friday. Also, the option is in-the-money already and so, the time decay risk is lower. However, to protect the downside, we suggest placing a stop-loss at ₹30. Note that the option is compulsory delivery and so, remember to exit the option if you do not intend to take delivery of the stock. 

I bought a 240-put option on Vedanta (one lot) for ₹8. Can I hold it? What is the outlook of this stock in the coming weeks?

Thirumal

Vedanta (₹236.3): The stock, in the first half of August, witnessed a sharp fall. But since then, it has been charting a sideways trend, largely between ₹230 and ₹240. Immediately above ₹240 is another resistance at ₹245. Hence, the short-term outlook can turn positive only if the stock rallies above ₹245.

Nevertheless, that does not guarantee a fall. For a sharp downswing to happen, the stock should slip below the support at ₹230. Therefore, we recommend exiting the put option that you hold. It closed at ₹7.4. Hence, you can exit almost at breakeven.

Once the stock breaks below the support at ₹230, you can consider buying puts. But note that, if such a move occurs this week or in the next, prefer buying October contracts. This will have less time decay risk and moreover, you will have more time until the potential decline plays out.

Send your queries to derivatives@thehindu.co.in

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