The stock of Tata Power Company (₹337.15) is ruling at a crucial level. It finds an immediate and major support at ₹326. A close below this will weaken it towards ₹270. On the other hand, there are resistances at ₹358 and ₹400. Only a close above the latter will change the long-term outlook positive. After a sharp fall in recent times, we expect the stock to show some resilience.
F&O pointers: Tata Power February futures closed at ₹337.25 and March futures at ₹339.40 against spot close of ₹337.15. The premium is narrowing down due to unwinding of long positions. From as high as 7.5 crore shares on February 5, open interest has dropped to 7.09 crore shares currently. Option trading indicates a broader range movement for Tata Power between ₹300 and ₹400.
Strategy: Consider buying February 340-strike call on Tata Power that closed with a premium of ₹7.05. As the market lot is 1,350 shares, this strategy would cost traders ₹9,517.50. This would be the maximum loss and will happen if Tata Power fails to sustain ₹340 on expiry. The break-even point is ₹347.05.
Keep an initial stop-loss at ₹2.80. Shift this to ₹7 if Tata Power opens on a positive note and the premium crosses above ₹8. Traders can aim for an initial target of ₹10. Aggressive traders can aim for ₹12 with trailing stop-losses.
Follow-up: Contrary to our expectation SBI fell sharply last week triggering stop-loss.
Note: The recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading
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