How to plan an options trade in HDFC Bank ahead of Q4 results?

The NIFTY50 heavyweight HDFC Bank will be announcing its fourth quarter results on 20 April, Saturday. The impact of the result will be visible on stock and the major indices on the 22 April.

Post the merger with parent HDFC, the HDFC Bank has remained under pressure and corrected more than 20% from its recent all-time high. The investors expressed concerns regarding the pressure on net interest margins due to the merger. However, after sharing a robust Q4 update in March 2024, the banking major has recovered over 9% from recent lows.

In addition, as the stock came under selling pressure, Foreign Institutional Investors reduced their stake by 4.5% in the March quarter to 47.8%. However, this sell-off was absorbed by Domestic Institutional Investors, who increased their stake in the bank by 3.7% to 23.1%.

Let’s take a closer look at the technical structure of the HDFC Bank along with the positioning of the options market ahead of its Q4 results.

Technical view

On the daily chart, HDFC Bank is trading below its 200-day moving average (DMA) and faced resistance at this level after its recent up move. Currently, the stock is stuck between 200 and 50-DMA. A break on either side on a closing basis can provide further directional clues to the traders. The immediate support zone for the index is between 1,360-1,450, while the resistance remains between 1500-1600 zone, which also coincides with its 200-DMA.

Options positioning

The open interest data of the 25 April expiry highlights significant call OI at 1500 and 1520 strikes, this zone will act as immediate resistance zone for the stock. The put option base is scattered with maximum OI at 1500 strike.

As of 18 April, the at-the-money strike of 1500 of HDFC Bank has the combined premium of ₹45 of both call and put options, implying a move of ±3%. But before planning a strategy, let’s take a look at the historical price movement of HDFC Bank around its quarterly results.

How to execute an options trade based on the straddle prices?

With options data signalling a potential price swing of ±3%, traders could explore strategies around expected volatility levels.

For those looking to gain from further increase in volatility, the Long Straddle strategy is highly effective. This approach involves buying an at-the-money (ATM) call and put option of HDFC Bank, both of the same strike price and expiry date. The aim is to gain from significant price movements - in excess of ±3% - in either direction.

On the contrary, the Short Straddle strategy suits scenarios where a trader is expecting a lower volatility. In this strategy, a trader would sell an ATM call and put option of HDFC Bank, both of the same strike price and expiry, in expectation that the price will remain within a range of ±3% after the earnings announcement.

For more in-depth knowledge of the Straddle and other options strategy, consider exploring our UpLearn educational resources. And if you're interested in accessing more historical performance data and analytical tools, join our community for additional support.

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.