F&O Strategy: Consider long strangle on SBI

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The stock of State Bank of India (SBI) (₹466.85) is ruling at a crucial level. The stock finds an immediate support at ₹430 and a resistance at ₹485. SBI finds a major resistance at ₹520 and a close above will trigger a fresh rally in the counter. The long-term bullish outlook will remain intact as long as it rules above ₹399. We expect SBI to sustain the bullish trend although there are resistances in between.

F&O pointers: SBI saw a rollover of nearly 94 per cent to July series. The SBI July futures on Friday closed at ₹468.60, a premium of ₹1.75, over the spot price of ₹466.85. The counter witnessed a steady accumulation of open positions along with a price rise, signalling accumulation of long positions. Option trading indicates that the stock could move in ₹460-500 range.

Strategy: We advise traders to consider long strangle on SBI. This strategy is employed when one expects a wild swing in the underlying price but not sure of direction. The strategy can be adopted by buying 450-strike put and 500-strike call. These options closed with a premium of ₹6.75 and ₹4.15 respectively. As the market lot is 1,500 shares a lot, this strategy will cost traders ₹16,350, which will be the maximum loss one can suffer. This will happen if SBI stuck between ₹450 and ₹600.

A close above ₹510.90 or below ₹489.10 will turn the position positive. Traders could consider holding the position for at least two weeks and review later.

Follow-up: The strategy (calendar bull-call spread) on Gail India had provided a profit potential during the early part of the week. Those who are still holding Gail 135 call can hold.

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

Published on July 02, 2022