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F&O Strategy: Consider long strangle on Tata Steel

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Option trading indicates that Tata Steel faces strong support at ₹1,100 and resistance at ₹1,400

The short-term outlook of Tata Steel stock remains negative while long-term positive outlook will remain intact till it remains above ₹899. The stock finds an immediate support at ₹1,074 and crucial one at ₹1,015. On the other hand, its immediate resistance is at ₹1,165 and the next ones are at ₹1,220 and ₹1,295. A close above the latter will also change the short-term outlook to positive.

F&O pointers: Tata Steel futures closed at ₹1,097.75 against the spot price of ₹1,097. It shed open positions on Friday along with fall in share price. This indicates that traders preferred to unwind long positions. Option trading indicates that Tata Steel faces strong support at ₹1,100 and resistance at ₹1,400.

Strategy: We advise traders to consider a long strangle on Tata Steel. The strategy can be initiated by buying 1060-strike put and 1160-strike call. These options closed with a premium of ₹24.25 and ₹13.80 respectively. As the market lot is 425 shares, this strategy will cost traders ₹16,171.25, which will be the maximum loss one can suffer. Maximum loss will happen if Tata Steel moves and settles in the ₹1,060-1,160 range.

However, profit potential is huge, if Tata Steel swings wildly in single direction i.e., either up or down. A close above ₹1,198.05 or below ₹1,021.95 will turn the position profitable. We advise traders to exit the position with a loss of ₹9,500 or at a profit if ₹13,500.

Follow-up: As advised, close the short Bank Nifty option and hold the farther month long option

Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading.

Published on May 14, 2022

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