Trading Biocon using RSI and Options – Bear Put Spread
Biocon has been trading sideways since last few weeks. Stock has not been above to show strength despite strong weekly index charts. The 60 – 40 zones on the RSI indicates a sideways area. There is a NR formation on RSI which indicates a probable bear active zone.
We will try to take advantage of this zone and create an option trade in the stock. As the volatility is normal here, we will be going for a debit strategy. We will form a Bear Put Spread. Buying ITM put 620 strike @ 19.25 and selling OTM put 570 strike @ 6.90, this will create a debit into our account 12.35 (maximum loss)
If bears take over the stock and manage to drag it down to 570 levels then this pair will be highly profitable, the risk reward ratio stands at 2.20
However in adverse case if prices move above 640 we can either exit the pair with a small loss or adjust the loss making legs.