Monday, October 14, 2013

Tata Motors Analysis

Tata Motors traders seem to be in a state of confusion. Both bulls and bears are trying to take control but are not getting any good move. while the stock seem to be making new highs, option data is suggesting some other picture. Bulls are in a trapped position or are they pretending to be trapped?
have a look at the 400 PE you will notice that a significant amount of open interest got added here today, if there is correction in sight why will PE writers write these ITM 400 PE? So going by the simple logic are the bulls going to take the stock higher even though the stock has reached very near to its highest open interest OTM CE strike of 400?

Another reason could be that the option writers know that the stock is going to spend significant amount of time at these 375-400 levels and hence have started writing strangle of 390 CE & 400 PE fetching 15+16=31 pts. they are aware that their option will start making loss only if Tata motors trades below 390-31=359 and 400+31= 431....which is very unlikely at least before October expiry.

Best is to avoid this stock as there are mixed signals at the moment.