Open interest in Reliance Industries futures is at a five-month high and options data suggest that the stock may rise to Rs 2,300-Rs 2,350 in the coming days.
The stock ended up 0.43% at Rs 2,225 on Friday, taking the last one month’s gain to 12%. The series has so far seen an addition of 27,852 contracts in futures, taking the total open interest to 143,342 contracts. Open interest is up 6.6% in the June series.
Volume in the stock on Friday was higher than the 20-day average and also saw high delivery of around 50%.
“The short-term momentum is strong and the stock can head to Rs 2,350 in the next couple of weeks,” said Abhilash Pagaria, assistant vice president, Edelweiss Alternative Research.
Several large investors have bought stakes in Reliance’s digital and retail business at the subsidiary level over the last year. The company has formed partnerships with Google, Facebook and Microsoft among others. There are expectations that the company will give an update on the direction of these businesses. Other reports have suggested that the company may announce a new smartphone in partnership with Google.
HSBC said the stock has seen an average surge of 140% in trading value on its AGM days compared to the volumes traded a month prior to the AGM.
“Over the past 10 years, in the week and month post the AGMs, the stock has outperformed the Nifty 6/10 and 7/10 times, potentially implying that the speech managed to give more confidence,” said HSBC.
Siddarth Bhamre, director-alternative investments and research at InCred Equities, pointed out that the outstanding positions are mostly bullish bets. Reliance’s implied volatility is slightly on the higher side at 40% and has risen in the last one month compared to Nifty’s implied volatility, which has come down.
“This surely makes its options expensive. Reliance has given a breakout and is consolidating post that. Taking these factors into consideration, we suggest selling a strangle option and 2,300 call option,” said Bhamre.
Rajesh Palviya, head-technicals and derivatives at Axis Securities, recommends a call ladder strategy for RIL in the June series, which involves buying of one lot of 2,220 call option at Rs 44.85 and selling one lot each of 2,300 call at Rs 18.35 and one lot of 2,340 call at Rs 10.60.
“The maximum profit of Rs 16,000 (64 points) will be attained at Rs 2,300 – Rs 2,320 levels, while (this) strategy will start making losses above 2400,” said Palviya.
“The cost of the strategy involves outflow of Rs 3,975 (16 points) which is the maximum loss if Reliance trades and remains below Rs 2,230 levels. However, above Rs 2,400, it is advisable to exit the strategy in total to avoid unlimited losses. Breakeven points of the strategy are Rs 2,404 on the upside and Rs 2,235 on the lower side,” he said.