Wednesday, February 12, 2014

Technical Calls - JP Associates

JP Associates Limited - Sell

The stock has been trading below its long term 200 day WEMA (73) since fourth week of January 2013. Moreover, the stock is trading within bearish price channel on the monthly chart. This indicating long term trend on JPASSOCIATES is likely to remain weak. On weekly chart, the stock has given a breakdown from the upward price channel indicates selling pressure cannot be ruled out and we might see a decline till 42/39 levels on downside. We expect selling pressure in the coming trading sessions with immediate support placed at 42. If the stock is able to give a sustained close below this level then we would see the stock testing 34.50 levels in the short term to medium term scenario. The stock is expected to find resistance at 50.30/52.70 levels.

Strategy: 

Sell JP Associate below 46.50 (Spot) with a stop loss of 50.30, for a potential target of 39/34.


Options Strategy

Traders could consider a short strangle on JP Associates. Short strangle is a strategy involving simultaneous selling of call and put options.  This strategy is best suited when one expects the underlying stock to move in a narrow range.

Traders could consider selling ₹35-put option and ₹45-call option. They closed with a premium of ₹1.15 and ₹0.75 respectively.

This will entail an initial income of ₹15,200 , as the market lot is 8,000 a contract. The maximum profit in this strategy will be the initial income. This strategy is for traders who can bear the risk, as loss will be unlimited.

For maximum profit, JP Associates has to settle between the strike price at the time of expiry.  However, if the stock breaks free in any one of the directions, that is either up or down, then this strategy will result in a huge loss. Any close above ₹47 or below ₹37 will impact the position.

It is better to hold on to the strategy till the expiry, as traders could capture the full potential of time value. We advise traders to exit from this strategy, if the loss touches ₹3,500.

Ingenious Investor
Equity Research Division

Ravina Consulting
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BANGALORE 560048

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