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Although I refrain from analyzing stock option strategies due to liquidity issues, some high-volume counters can still be explored for good opportunities in this space. In that vein, here’s an option strategy in Bharti Airtel (NS:) for the 28 September 2023 expiry.
Yesterday, Reliance Industries (NS:) concluded its AGM (annual general meeting) and revealed its aggressive plans to scale up the business of Jio Financial Services, which included the rollout of Jio AirFiber on 19 September 2023 and it will directly rival Bharti Airtel’s Xstream AirFiber. In anticipation of stiff competition, investors are liquidating Bharti Airtel shares from their portfolios, leading to a 1.66% decline to INR 856, by 10:39 AM IST.
Now, as negative sentiments are building up, here is a bearish strategy in the stock which also gives some room for the upside retracement.
It is one of my favorite strategies – Bear Call Spread.
The stock had topped out at INR 901.4 on 27 July 2023 and from there, it is now down to INR 856. Therefore, this all-time high can be deemed as a strong resistance now. For this credit spread, traders can explore a strike of 900 or above to go short on with a farther OTM hedge.
In this case, I would prefer a 900 CE short position at the CMP of 6.1 and hedging it with a 920 CE, at 3.45. The current net premium that will be fetched is 2.65 or 2,518 per lot. This gives a max profit potential of around 5.8% on the required margin of INR 43,000. The reason I explore such spreads is low margins, making them accessible to most of you.
Image Description: Daily chart of Bharti Airtel
Image Source: Investing.com
Now here’s the risk & return profile. The credit of INR 2,518 per lot is the max profit in cases – 1) if the stock falls from here, 2) remains at the same level, or 3) rallies until INR 900. In all these 3 cases, this trade will end with the max profit.
The risk only starts above INR 900. If the stock hits 900 till the trade is on, it’s better to exit the trade at a small loss relative to holding it on. Above the breakeven level of INR 902.7, the loss will increase to a maximum of INR 16,483 per lot. This gives a bad R:R of 6.5:1. However, if the trader exits at the spot level of INR 900, the loss would probably be not more than 2x of the return (R:R 2:1). Hence, not holding this trade beyond 900 is recommended.
You can reach me on Twitter if you need more clarity on this strategy. My handle is – aayushxkhanna
Read More on : An Options Strategy in Nifty 50 for Not-So-Bullish Traders!
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