Despite the recent rally in Ashok Leyland, the long-long term outlook remains neutral only.
However, in the short-term the stock may move with a positive bias. Only a break above Rs 110 or below Rs 70 will set a clear trend for Ashok Leyland.
The stock finds an immediate resistance at Rs 93 and the support at Rs 74.65. While a close above Rs 107 could change the outlook positive and lift Ashok Leyland towards Rs 134. But a close below Rs 74.65 is likely to weaken it to Rs 55. The chance of breaking Rs 65 appears rather bleak.
F&O pointers: The Ashok Leyland February added fresh long positions on Friday along with rise in underlying price, signalling a positive bias. However, accumulation of open interest was not secular and saw unwinding too in between, especially post Budget. Option trading indicates that Ashok Leyland may move between Rs 80 and Rs 70.
Event: Ashok Leyland is coming out with quarterly number on February 12.
Strategy: Traders could consider short strangle on Ashok Leyland. This can be done by simultaneously selling Ashok Leyland ₹95-call and ₹70-put. Both these options closed with a premium of Rs 0.75 and Rs 0.30 respectively.
As the market lot is 8,000 shares per contract, a maximum profit traders could earn from the strategy is the premium received i.e. Rs 8,400. To achieve the maximum profit, Ashok Leyland should settle between the strike price (Rs 70-Rs 95).
However, loss potentials are unlimited if Ashok Leyland swings wildly in any one of the directions i.e. either up or down. A move above 96.05 or below Rs 68.95 will start pinching the position.
We advice traders to hold the position till the expiry day. This strategy is for traders who can withstand wild swings and understand the concept very well. Others do stay away from this strategy, as this could hurt the position immediately, especially the company is coming out with results.