I’m holding the October expiry Tata Steel 160-put option. Should I continue to hold or exit?
Chinmay Dey
Tata Steel (₹166.75): The stock rebounded on the back of the support at ₹150 a couple of weeks ago. Nevertheless, in the recent sessions, it has been moving in the sideways trend between ₹164 and ₹170.
As it stands, the likelihood of the recent upswing extending is high. There is a chance for Tata Steel to touch ₹180 in the short-term. However, the price action shows that ₹170 is currently resisting the bulls.
Supporting the same, the option chain of October options show that 170-strike call has seen considerable selling. Meaning, at this juncture, participants believe the price may not increase above ₹170. Therefore, this can act as a strong resistance and the bulls might struggle to breach this.
If the resistance at ₹170 triggers a sell-off, the price can fall to ₹155, a strong support. Subsequent support is at ₹150. Notably, there is a series of support levels between ₹150 and ₹155, making it a good demand zone.
That said, if the stock gets past ₹170 from the current level, it can quickly touch ₹180.
Given the above factors, we suggest you hold the 160-strike put option. However, exit this contract at the prevailing price if the stock breaks out of the barrier at ₹170.
On the other hand, if the price of the underlying falls from the current level, a decline beyond ₹155 is less likely. So, liquidate the 160-put at the going price when the share price of Tata Steel falls to ₹155.
Since you’re on the buy side, you should be wary of the time decay. That is, if the stock continues to consolidate, the premium of the option that you hold will drop as time goes by. Hence, you should plan for the exit based on your risk tolerance if the stock neither falls nor rallies in the next two or three weeks.
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