Sunday, February 28, 2010

Stocks Strategy: Calls on Reliance Capital

K.S. Badri Narayanan

Reliance Capital (Rs 788.95): Friday's surge lifted the stock violently.

However, profit taking and perhaps some unwinding of long positions arrested the gains. The stock's crucial support is at Rs 890.

Only a close above Rs 890 would make outlook completely positive for the stock. The stock finds immediate support at Rs 758-760 levels, and a convincing close below that could weaken it to Rs 547.

The Rs 660-663 level however could act as a minor support zone in between.

We expect the stock to move in a narrow band for a few days. Reliance Capital futures (market lot 276) saw an accumulation of about 17 per cent in open interest on Friday, taking the total open interest to 51.83 lakh shares. The stock's futures closed with a premium of about four points, suggesting that most of the accumulation may have been on the long side.

Among options, strike price at Rs 800 had the highest open interest, while that at Rs 760-strike shed open positions.

This indicates that Reliance Capital could face support at about Rs 760 and resistance at Rs 800.

Put options on Reliance Capital weren't that active.

Traders can consider selling Reliance Capital 800 call option, which closed Friday at a premium of Rs 29.

This strategy is however suitable only for high-risk traders given the volatility. Besides, writing of options involves margin commitment.

Traders can consider holding this strategy for more than a week.

Source BL

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