Breakdown: F&O Counter Slices Through ‘Major Support’!

Published 18-04-2023, 02:40 pm

A sharp sell-off has been seen in the broader markets around 1:30 PM IST, giving short traders a good opportunity to pounce on weak counters. The share price of Multi Commodity Exchange of India Limited (NS:MCEI) (MCX) is of such category that breached below its crucial support of INR 1,460 on the daily chart and is currently trading 1.5% lower at INR 1,451.

There have been several intraday spikes below this support zone since March 2023 and all of the times a surge in investors’ demand helped the stock to close above this zone. Therefore, traders looking to go short on this weak counter should ideally wait for a closing below INR 1,460 and looking at the comfort with which MCX shares are trading below this level, traders might get a good trade in the next trading session.

Image Description: Daily chart of MCX with volume bars at the bottom

Image Source: Investing.com

The weakness in the counter is evident on the chart as after a good rally from the low of INR 1,344 in mid-February 2023, the stock started to trade in a sideways range from around mid–March 2023. This indicates the changing demand-supply equation, leading to a neutral trend. However, this trend was supported by a strong demand zone of around INR 1,460 which has been broken now.

Another factor that is spoiling the party for bulls is the recent announcement by NSE to expand its commodities derivatives segment with the introduction of natural gas and WTI-based crude oil contracts. Although MCX is the leader in commodities trading by a hefty margin, still the news is enough to dent investors’ sentiments, the impact of which is being seen in the price drop.

On the downside, there is a good potential for MCX shares to fall to INR 1,400 where some investors might kick in to support the price. This potential INR 60-odd points fall can be played via a bear put spread, which means going long on the ATM put and selling short an OTM put (1:1 ratio). In this case, the short strike should be either 1,400 or below it. And traders must never forget to square off their stock options position 1 day before the expiry to avoid high margin requirements and the risk of physical delivery.

Read More: Option Buying Strategy for This Bottom Reversal Stock!

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