I bought one lot March expiry 210-put option on Hindustan Copper last week. Purchase price is ₹4. What is the outlook for the stock? Can I hold the put? – Deepak, Bengaluru
Hindustan Copper (₹223.85): The stock has been in a steady downtrend since May last year. The fall was triggered at ₹400, a resistance. Last week, it made a fresh 52-week low of ₹195.40 before recovering to the current level of ₹223.85.
Even though the stock gained over the last week, the broader trend remains bearish. Notably, on Friday, it experienced selling on reaching the resistance at ₹230, indicating that sellers come in on rallies. The 50-day moving average and a falling trendline, too, lies at ₹230, making it a strong resistance. Until this holds true, the bears will be at an advantage.
There is a good chance that the stock will resume the downtrend from the current level. In the near term it can fall to retest ₹195. A breach of this can drag the stock to ₹180. That said whether the decline to ₹180 can happen before the end of March expiry is uncertain. Yet, a decline to ₹195 within a couple of weeks is possible.
Given the aforesaid factors, we suggest holding on to the 210-put option, whose premium stood at ₹3.40 on Friday. But we would like to bring it to your notice that the stock is currently in the F&O ban. So, you cannot create new positions although you can exit the existing trades.
As expected, if Hindustan Copper’s share price drops to ₹195 within a couple of weeks, the price of 210-put can rise to ₹15. Nevertheless, we would suggest a lower target of ₹12, adjusting for a potential drop in implied volatility.
In case the stock recovers above ₹230, we might see an upswing to ₹250. In such a scenario, the probability of a fall to ₹195 before the expiration of the current expiry will drop considerably. So, once the stock surpasses ₹230, you can liquidate the put option at the prevailing price.
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