Looking for an option trading strategy to put on? Here’s a move to consider recommended by Business Line. Just remember that Writing options involve higher margin commitments. So this strategy is best suited for traders who are willing to take a risk.
Jaiprakash Associates: The outlook remains neutral for JP Associates in the short-term. The stock could move in the Rs 85-65 range. A conclusive close above Rs 85 has the potential to lift the stock towards Rs 102 however, a drop below Rs 65 would weaken the stock to Rs 54.
F&O pointers: JP Associates saw a marginal accumulation of short positions. Option trading indicates a neutral view as both call and put added open positions. However, heavy unwinding of open interest in Rs 75 put and strong accumulation in Rs 75 call suggests that Rs 75 would acts a strong resistance for JP Associates.
Strategy: Traders could consider short strangle on JP Associates. This can be initiated by selling Rs 75 call and Rs 65 put. They closed at Rs 2.25 and Rs 0.55 respectively. This would result in a net premium collection of about Rs 11,000 a contract. (Market lot of JP Associates is 4,000).
Short strangle strategy is best suited when one considers that the underlying equity is likely to move in a narrow range till expiry. While the maximum profit is the premium collected, loss could be unlimited if JP Associates breaches Rs 75 or closes below Rs 65. Maximum profit occurs if JP Associates closes between these strikes at the time of expiry.
Writing options involve higher margin commitments. So this strategy is best suited for traders, who have the wherewithal to withstand the swings.
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