The stock of Tata Communications (₹1,255.4), which depreciated last week, is now hovering around a support. We expect it to rebound on the back of this level soon, providing an opportunity to take short-term bullish trades. Therefore, traders can buy a call option on the stock..
Chart: Tata Communications has been making higher highs and higher lows since September last year, tracing an upward parallel channel. Last week, the stock has fallen off the resistance at ₹1,350 and is now trading near a support at ₹1,250. The lower boundary of the rising channel also coincides with this support, making it a strong one.
Therefore, we anticipate a bounce in price this week. But this can be limited to ₹1,350 and so, the strategy should be to capitalise on the potential short-term bounce. Going long on the call option can be a good strategy given the prevailing conditions.
Strategy: Traders can buy February expiry 1320-strike call option on Tata Communications. This option closed at ₹20.45 on Friday. Thus, one has to shell out ₹10,225 as the lot size is 500 shares. Place stop-loss at ₹9. Book profits when the option premium rises to ₹45.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading