Is Bank of Baroda a Trader's Trap or a Hidden Gem?

Greetings, fellow market enthusiasts!

In today’s article, we will take a look at Bank of Baroda (NS:BOB). I will analyze the stock from the perspective of an equity trader and a derivatives trader. I am doing so as the stock is currently stuck in a box range and by mixing derivatives and equity trading, a better result can be attained.

Now, from the past few months, the stock has been trading within the range of 236 and 300. Thus, it would be very unwise for anyone to take a long position in the stock right now as it would be like playing hopscotch blindfolded. This is as the box range will cause you to lose money while also missing opportunities elsewhere. Plus, I see a high likelihood of the support at 236 breaking and that will be nasty for anyone holding the stock. This is as if that happens; the stock may quickly descend toward the supports at 220, 195, and 170. Now that is where things will get interesting.

I say this as once we touch 195 and 170, I will start looking for signs of a base forming for a medium-term long trade. For that, I will first look at the volume build-up indicator, as I will want to see a shift in the volume build-up from bearish to bullish. Moreover, I will also check for secondary confirmation from the trend catcher indicator as I will want to see a bottoming pattern form in it. This is as a conjunction of these two signals will force the price action to turn positive. Therefore, once this occurs is only when I will consider going long on Bank of Baroda. Until then, I will not touch the stock with a ten-foot pole, as there is no point in holding an equity position that is going nowhere.

Now, on the derivatives side, things get a bit more exciting. We will be looking at a two-pronged attack on the stock via a combination of option buying and option selling. Let’s break it down.

For option buying, if we breach the support at 236, then I will short the stock down to 220. I will use option buys for this part as the journey between 236 and 220 should be quick. Hence, option buying is preferable for a speedy move. Moreover, if that breaks too, then I will hold the PE buys for a potential fall to 195. But remember, these are high-risk plays that require quick execution. This is because even hedged option buys are severely affected by stagnation due to price decay.

On the other hand, option selling is where I have deployed the big guns. As of now, I am already holding CE sells of above 255, which are in a good profit. I sold above 255 as the equity has a strong resistance zone between 255 and 270. Hence, any rise will have an uphill task breaking above that zone. However, coming to my position, if the support at 236 breaks, then I will modify the trade by booking the profits in the current CE sells and rolling down the CEs by selling fresh calls above 240. That way you have booked profits, whilst also selling closer in-the-money options, which will decay in a quicker manner. This as options decay is an option seller’s best friend and an option buyer’s worst enemy.

Here’s the bottom line: Bank of Baroda is presently stuck in a box range for now, making equity trades a tad dicey. But fret not! The derivatives market offers some juicy opportunities. For now, I’ll be focusing on those strategies.

Until next time, happy trading!