Why you should sell a deep OTM call to Motherson Sumi

The long-term outlook for Motherson Sumi Systems stock (₹ 237.15) remains bullish, although in the near term it should move within a range. The stock finds immediate support at 217 and the main at 199. If the current trend continues, we can expect Motherson Sumi to hit a new high at 278. Nonetheless, in the short term we would expect the stock to move in a range of ₹ 199 to ₹ 269.

F&O pointers: The meter entered derivatives recently. Open interest fluctuated although the stock, after hitting 269, cooled a bit. Currently, open interest stands at 3.27 crore of shares. Options trading indicates a range of 220-250 for the stock.

Strategy: Since we expect the stock to move within the range, traders may consider selling a ₹ 280 call on Motherson Sumi. The option closed with a premium of 2.70 on Friday. Since the market lot is 3,500 shares per contract, this strategy will create an inflow of 9,450, which will be the maximum profit one can earn. Maximum profit will occur if Motherson Sumi closes below ₹ 280 upon expiration. This strategy is for traders who can take high risks and others can stay away because the potential for loss is huge.

On the other hand, losses will start to pile up if Motherson Sumi exceeds 282.70 (the strategy’s breakeven point). Besides a limited profit, this strategy is risky because it will require a higher margin commitment if the stock rises sharply.

To follow: Hold the BHEL options strategy for one more week, despite the currently losing position. Additionally, maintain the Infosys option recommended the previous week, as the company is expected to report its second quarter results on October 13.

Note: Recommendations are based on technical analysis and F&O positions. There is a risk of loss in trading.

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