The long-term outlook for the stock of Tata Steel (₹322) still remains negative. That will change only if the share price of the steel major closes above ₹550. However, the short-term outlook remains positive, despite the stock turning volatile. It finds immediate resistance at ₹357 and support at ₹315.
A conclusive close below ₹315 will change the outlook to negative and the stock may decline to ₹253. A close above the resistance will lift Tata Steel to ₹404.
This signals that traders are building positions at lower levels. The Tata Steel May futures commands a premium of over two points.
Trading in options indicates strong supports at ₹320 and ₹300. Similarly, ₹350 would act as a resistance level.
Strategy: Risk-averse traders can consider buying ₹330-call option. This is simple, where the total loss is the premium paid while the profit could be unlimited if Tata Steel makes a strong come back within this series. As the option is quoting at a premium of ₹6.75, one has to incur a total cost of ₹13,500.
Traders can consider exiting the position if the loss mounts at ₹7,500 or can book profits if the premium surges to ₹18-20/contract.
Traders with high-risk appetite can consider going long on Tata Steel futures with a stop-loss at ₹315 (spot price) and aim for a target of ₹357.
The stop-loss can be shifted to ₹322 if the counter closes above that level on Monday.
Follow-up: Despite the huge swing in the early part of the week, the stock of Reliance Capital moved on expected lines. Traders can hold the position for a week and book profits.