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Protective future strategy: Buy TCS future for target of Rs. 3400

Rationale

• Most IT stocks remained resilient as the Nifty saw profit booking in the last week of the January series

• Among leaders, TCS, in particular, stayed firm above its last month’s Put base of 3000. Delivery based volumes were observed multiple times last month whereas the stock is rallying on the back of short covering

• The open interest in the stock has moved to a two-year low. We feel there is huge headroom left for fresh participation on the long side. TCS started the current series with highest Call base at ATM strike of 3200. No aggressive additions were observed in OTM strike Calls, indicating a close above | 3200 levels would open up more upsides

• The IV-spread of Nifty-TCS reverted from its Mean-2 Sigma levels on the back of Call writing positions. We feel on the back of fresh buying interest in the stock for February series, the IV-spread would approach its Mean + 2 sigma levels, which would be positive for the stock

Protective future strategy: Buy TCS future for target of 3400

Protective Future strategy refers to forming a position in future (either long or short) & minimize the risk by buying ATM or OTM option. For example, buying Nifty current month future & buying ATM Put or long current month stock future & buying ATM Put. It’s a limited risk, unlimited profit strategy generally formed where market are too volatile and sharp moves are expected in the underlying.

Buy Tata Consultancy Services Ltd @ 3190-3210 TGT 3400 SL 85-90 points

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