Tata Steel: The stock is ruling at a crucial level. Only a conclusive close above ₹575 will change the long-term outlook to positive. Though in the recent rally Tata Steel managed to pierce the crucial level of ₹575, it failed to sustain above this key resistance. The immediate-term outlook has now turned negative. If the current weak trend persists, there is a chance that the stock may test its key support levels of ₹471, or ₹422 — a dip below this will change the medium-term outlook also to negative.
F&O pointers: The Tata Steel futures did not provide any clues. Options trading indicates a range of ₹500-560 .
Strategy: Traders could consider shorting Tata Steel. Stop-loss can be placed at ₹575 initially. If the stock opens on negative note on Monday, then the stop-loss could be shifted to ₹553 or ₹524 for a target of ₹471. This strategy is for traders who are willing to withstand volatility. All stop-losses mentioned above are for the underlying stock and on a closing day basis. Alternatively, traders could consider buying the 500 put, which closed on Friday with a premium of ₹5.6. The maximum loss in this strategy is the premium paid, which works out to ₹5,600 (market lot for Tata Steel contract is 1,000 shares). Traders could exit the position if the premium hits ₹1.8 (stop-loss).
Follow-up: Last week, we had advised shorting Bank Nifty or buying 15,000 put. Traders could consider holding the positions for one more week.