Stock Strategy: Consider short strangle on Apollo Tyres :: Business Line

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Apollo Tyres (Rs 64): After the recent sharp slide, the long-term outlook turned negative for Apollo Tyres. However, in the short-term, the stock could move in a narrow band between Rs 60 and Rs 78. A close below Rs 60 will trigger a fresh fall. In that event, the stock could plunge towards Rs 51. On the other hand, a conclusive close above Rs 92 will turn the outlook positive for Apollo Tyres.

F&O pointers: Apollo Tyres witnessed heavy accumulation of short positions on Thursday and Friday. Over 60 lakh shares were added on Friday alone. Unwinding in put options indicate a negative bias. However, 60 put saw heavy open interest accumulation indicating strong support. Among calls, 70 and 75 strikes witnessed higher open interest positions, signalling resistances.

Strategy: Traders could consider short strangle on Apollo Tyres using 60 put and 80 call. They closed with a premium of Rs 0.7 and Rs 1.95 respectively.

Short-strangle is best when one expects the underlying stock to move in a narrow range. Maximum profit is the premium collected, which works out to nearly Rs 10,600. On the other hand, loss could be unlimited if Apollo Tyres moves out of the aforesaid range. Besides, writing option involves higher margin commitments. This strategy is suggested only for traders who can withstand wild swings and can hold it for at least till expiry.

Loss will escalate if Apollo Tyres closes below Rs 57.5 or above Rs 82.5. Market lot is 4,000 units a contract.