Future Perfect. Short strangle on Ashok Leyland

The long-term outlook for Ashok Leyland (₹ 97.5) remains positive, as long as it stays above ₹76. The stock finds immediate support at ₹89.3 and a close below this level can drag it lower to ₹84. If the current momentum sustains, the stock may breach its all-time of ₹99.65 — which it registered in August this year. In such a situation, Ashok Leyland can go up to ₹120. However, the stock is likely to moderate after rising sharply in the last few days.

F&O pointers: Futures trading on Ashok Leyland suggests positive bias, as traders added more positions on the long side. Option trading, however, indicates a strong resistance at ₹100.

Strategy: Traders can consider short strangle on Ashok Leyland. This can be initiated by selling 107.50 call and 87.50 put of Ashok Leyland. They closed with a premium of ₹1 and ₹0.70 paise respectively. This strategy will imply an initial inflow of ₹11,900, which is the maximum profit one can earn. For that to happen, Ashok Leyland must close between ₹107.50 and ₹87.50. 

Loss, however, could be unlimited in this strategy. A close above ₹109.20 or below ₹85.8 will start hurting the position. This strategy is for traders who can withstand volatility.

We advise traders to review the position every week.  They should also consider exiting the position if the loss mounts to ₹6,500.