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I bought two stock options: Infy 1760-call at ₹51 and Voltas 1640-call at ₹72. Kindly suggest target and stop-loss levels for these positions – Kishore
Infosys (₹1,755): The stock has seen a sharp drop in price recently. It fell off the resistance at ₹1,975 and is currently hovering around ₹1,750.
Although the price action appears bearish, the long-term chart of this stock shows that there is good support at ₹1,700, which can arrest the decline.
However, this does not mean that the direction of the trend will turn toward north. There is a possibility of consolidation at this level too.
Our suggestion is to have a target and stop-loss for options based on the underlying. So, when the stock slips below the support at ₹1,700, exit the option at the prevailing premium. Because a drop below ₹1,700 can lead to a fall to ₹1,660 or even to ₹1,600.
On the other hand, if the stock recovers, liquidate the option contract at the going price when the underlying touches ₹1,840, a resistance.
You should also keep in mind that time decay will work against you. So, if neither target nor stop-loss levels are hit in the next two weeks, it is better to exit the trade or roll-over to the next month contract.
Voltas (₹1,690): The stock has been in a downtrend since mid-October. But it now seems to have found support at ₹1,620 as it bounced off this level on Monday. The scrip has been extending the upside today, giving some positive impetus.
If the rally sustains, the stock can soon touch ₹1,750, a hurdle. A breach of ₹1,750 can take it further up to ₹1,880 in the near term. However, if the bears regain traction and start to drag the price down, ₹1,620 will provide support. If this level is broken, Voltas can see another leg of downtrend, potentially touching ₹1,540.
Given the prevailing conditions, our recommendation is to exit the option when the underlying stock price touches ₹1,750. You may buy again after the breakout of ₹1,750.
In case the price falls from the current level and the support at ₹1,620 is breached, liquidate the option that you hold. Note that the target and stop-loss are given based on the movement of the underlying share price.
Send your queries to derivatives@thehindu.co.in
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