F&O strategy: How to plan an options trade in Bajaj Auto ahead of Q4 results?

The two-wheeler major Bajaj-Auto will report its fourth quarter earnings of FY24 on 18 April. Similar to Infosys, the result will be announced on the weekly expiry of NIFTY50 options contracts but after the market hours.

In the auto-sector, Bajaj-Auto has rewarded investors with triple-digit returns in FY24 and the stock has more than doubled on strong volume growth and better product mix. On the earnings front, the street is expecting a positive outlook for both revenue and net profit on a year-on-year basis on the back of higher sales volumes.

Let's take a look at the key technical levels and how the options market is positioned for earnings day.

Technical view

Bajaj Auto has been consolidating in a narrow range since late March, following a strong period of gains. On 16 April, the stock closed below its 20-day moving average (DMA). However, it remains comfortably above its 50-DMA.

The daily chart continues to hold the uptrend with the higher-high and higher-low structure. We have also highlighted key support and resistance levels for our readers to monitor the price behaviour carefully.

Options outlook for 25 April expiry

The options data has shown a significant increase in open interest at the 9000 and above call strikes, indicating resistance. On the other hand, put options are accumulated at the 9000 and 8800 strikes.

As per Bajaj-Auto’s open interest, the at-the-money (ATM) strike of 8950 has the combined premium of ₹422, which implies an expected movement of ±4.7% (up or down) from the 16 April closing price of ₹8,919.

Now let's look at Bajaj-Auto's historical performance before and after announcing the results for the last three quarters.

How to set up a trade with options?

Given the implied move of ±4.7% from the options data, traders can initiate either a long or short volatility trade, taking into account the price movement. To trade based on volatility, a trader can take a Long or Short Straddle route.

Straddles are the options strategies that are primarily used on the basis of volatility. In simple terms, in a Long Straddle, a trader can buy an ATM call and put option of the same strike and expiry of Bajaj-Auto, looking for a move of more than ±4.7% on either side.

On the other hand, the Short Straddle capitalises on the fall in volatility. In a Short Straddle, a trader sells both ATM call and put option of the same strike and expiry. This strategy is deployed when the trader believes that the price of the Bajaj-Auto after the earnings announcement will be confined in a range of ±4.7%.

Interested to know more about straddles? Check out our UpLearn education content. If you want to see more historical earnings price data like in the table above for this stock, sign-up for our community, let us know, and we will share it!

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.