F&O strategy: How to trade in Wipro ahead of Q4 results?

The IT service provider Wipro will report its fourth-quarter earnings of FY24 on 19 April. The results will be declared after the market hours and the impact on the stock will be visible on 22 April.

The IT major was recently in news after its CEO, Thierry Delaporte resigned from the post before the end of this five-year tenure. The company later appointed board member Srinivas Pallia as the new CEO.

Against a backdrop of subdued demand, underperformance in the key consulting business and several high-profile exits, the street expects revenues to be marginally higher on a sequential basis, but to continue to decline on a year-over-year basis in line with management's guidance.

However, with similar net profit forecasts, the street is split on margins. Moreover, after the leadership change, the focus will be on revenue guidance and demand outlook for the coming quarters.

Here’s how the technical structure and the options market is positioned ahead of its Q4 earnings announcement.

Technical view

Wipro is currently trading below its key daily moving averages like 20 and 50 and is in the close proximity of its 200-DMA. The 200-day moving average is considered as a support level when the price is trading above this level and a resistance once price closes below it. Considering the price structure, Wipro is trading at a crucial juncture. As a break below 200-DMA on a closing basis can further deteriorate the sentiment. On the other hand, a reversal signal from here can lead to a short-covering bounce.

Options outlook

Open interest data of Wipro’s 25 April expiry shows a fresh addition of significant call and put at the 450 strike. Considering the at-the-money (ATM) strike of 445, the combined premium of both the call and put comes at ₹23. This means, the traders are expecting a movement of ±5.2% ahead of the expiry from the closing price of 16 April.

To better understand the price behaviour, let's take a look at how Wipro has moved over the last three quarters around its earnings announcements

How can one configure an options trade? Based on options data suggesting a potential price movement of ±5.2%, traders have the opportunity to engage in either a long or short volatility strategy.

For those looking to capitalise on the expected volatility, the Long Straddle strategy is appropriate. This involves buying both an at-the-money (ATM) call and put option with the same strike price and expiry of Wipro, with the aim of profiting from a move of more than ±5.2% in either direction.

Conversely, the Short Straddle strategy is suitable for scenarios where volatility is expected to fall. In this approach, a trader would sell both an ATM call and put option with the same strike price and expiry, implying that the price of Wipro will remain within a range of ±5.2% after the earnings release.

For more insight into Straddles and other options strategies, explore our UpLearn education content. And if you're interested in accessing more historical earnings data like the one above, join our community and let us know - we're here to help!

Disclaimer

Derivatives trading must be done only by traders who fully understand the risks associated with them and strictly apply risk mechanisms like stop-losses. The information is only for educational purposes. We do not recommend any particular stock, securities and strategies for trading. The stock names mentioned in this article are purely for showing how to do analysis. Take your own decision before investing.