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Coal India (₹292.8) is hovering around a crucial support at ₹285. A close below it will turn the outlook negative and take it lower to to ₹245. On the other hand, if it manages to close above ₹302, the stock can rise to ₹326. We expect the stock to move in a narrow range between ₹285 and ₹325.
F&O pointers: Coal India April futures witnessed unwinding of over four lakh shares in open interests despite the underlying stock gaining marginally. This signals negative bias, as traders show lack of faith. Trading in option indicates that the stock could face a serious resistance at around ₹300.
Strategy: Traders can consider a short strangle strategy. This can be initiated by selling simultaneously ₹305-strike call and ₹280-strike put. These options closed with a premium ₹2.6 and ₹1.60 respectively. As the market lot is 1,700 shares per contract, the strategy will ensure an inflow of ₹7,140, which would be the maximum profit one can earn with margin commitment.
To achieve the maximum profit, Coal India has to settle between the strike price at the time of expiry.
On the other hand, the loss could be unlimited if Coal India shares move in a single direction, either up or down. A close above ₹309.2 or below ₹275.8 will start hurting the position. We advice trades to hold the positions till expiry.
Follow-up: Hold CG Power and Industrial Solutions.
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