Update (8th August 2012 9:40AM): Stop loss hit. Adjust positions. Buy 250 August Call at Rs. 6.8 and sell 260 August Call at Rs. 3.8 with a stop loss of Rs. 253 on TATAMOTORS stock price.
Today's recommendation is on TATAMOTORS options.
TATAMOTORS has strong resistance at Rs. 235-240 levels.
TATAMOTORS's volatility is expected to be rangebound.
Overall technical strength of TATAMOTORS is weak.
Call with maximum open interest is at Rs. 220.
We suggest selling TATAMOTORS 250 Aug Call options as our thesis on TATAMOTORS is that its going to be bearish/neutral. Aug 250 Call is trading at Rs. 2. If you trade 1 lot of options i.e. 1000 quantity, you will get a credit of Rs. 2000.
Our target is that option will expire worthless. Trigger you stop loss (that is, buy back options) when stock price of TATAMOTORS moves above 240.
Keep in mind that TATAMOTORS may be having an earning event in mid-august due to which volatility of options can rise temporarily.
We always recommend you to follow stop loss to avoid extending unnecessary losses.
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DISCLOSURE: I am short TATAMOTORS 250 Aug Call.
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