In an interview to CNBC-TV18, Amit Trivedi, Co-Founder of Investworks.in shared outlook on the market and recommended trading strategies for various stocks.
Below is a verbatim transcript of the interview:
Q: Last few weeks have been quite volatile. We have had a pullback but how do you trade it from hereon?
A: If you look at the broad set up, emerging markets (EMs) generally have been falling predominantly because of the commodities slump that is happening across the globe. India is kind of rallying from around 5,500 to 5,700 predominantly on expectation of some kind of rate action on May 3. We think this outperformance relative to EM should continue at least for the next couple of weeks. Broadly we think market should be at around 5,700 for the next couple of weeks.
Q: Big rally on Mahindra and Mahindra (M&M) yesterday, you have a trading strategy on that this morning?
A: Because of rate cut expectations, all autos and banks have outperformed the broader market and we think this stock should predominantly consolidate here or may move up slightly as we move closer to May 3. On back of that, the strategy on M&M is because of the sharp rally, implied volatility of options has gone up, which is trading at around 40 percent right now. So one can sell 800 strike Puts of M&M, which is close to around 10 percent away from current price of Rs 875-880 levels. You make around Rs 500-700 profit in this trade in the next four days if M&M remains any value above Rs 800 per se.
Q: Reliance Industries Ltd (RIL) has not done much post results, what do you see for the rest of the series for this name?
A: In the entire April series, RIL has been predominantly moving between Rs 760 and Rs 800 levels. We think the stock should consolidate at around Rs 775-780 levels and if there is anything we move up to around Rs 790-795 or go down to around Rs 765.
One can execute a ratio trade in RIL, which is buy 789 strike Call at around Rs 13 and sell two lots of 800 strike Call at Rs 6. So, there is Re 1 invested in this trade and this Re 1 spread will increase to around Rs 3-4 by Tuesday if the stock remains here. if it goes up then one will make maximum profit at Rs 800 which is Rs 19 or if the stock goes down to Rs 760, one can just unwind 780 Call and come out of the trade.
Q: What about another heavyweight State Bank of India (SBI), how would you trade that?
A: Because of the soft data in terms of inflation, the stocks have moved up. We do not know if there will be a rate cut on May 3 or no given that for example, if you look at Brazil which raised trades yesterday, but expectation of rate cut may lead the stock to remain at the current levels of around Rs 2,250 levels. So, we think since you have expiry next Thursday but only four working days, one can sell 2,250 straddle at around Rs 80. This price will go down to around Rs 55 in the next two-three days by Monday or Tuesday. You can place a stop loss if it goes to around Rs 90.