F&O strategy: Infosys below 200-DMA, how to plan a trade ahead of Q4 results

IT giant Infosys will announce its fourth quarter FY24 results on 18 April. The result will be announced after market hours and will be in focus as it will be announced on the weekly expiry of NIFTY50 options contracts.

The Bengaluru-based company slumped more than 3% on 16 April ahead of its earnings release. This comes after a sharp uptick in U.S. retail sales data which led to a jump in U.S. bond yields, further weakening investor sentiment in the overall technology space. The data fuelled concerns of further delay in interest rate cuts by the U.S. Federal Reserve, which could delay the recovery in demand for IT services.

However, the street is expecting a mixed set of results, with revenues down quarter-on-quarter basis and net profit and margins up marginally in the fourth quarter.

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

Technical view

On the daily chart, Infosys is trading below all of its major daily moving averages (DMA) such as the 20, 50 and 200. The stock recently slipped below its 200 DMA, which is seen as a key near-term support zone, indicating continued weakness. However, the stock is approaching its short-term swing low of ₹1,351. This zone has acted as support for the index on more than four occasions since June 2022.

Options outlook

Open interest for the 25 April expiry shows highest call options OI at 1500 strike, which may act as immediate resistance. The highest OI of the put options is also based at 1500 strike but witnessed some unwinding on 16 April.

Based on the open interest data of Infosys and at-the-money (ATM) straddle prices as of 16 April, the market participants are expecting a move (up or down) of ±5.9% from the closing price of ₹1,415.

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

How to plan a trade with options?

Considering the movement of ±5.9% implied by the options market, traders can plan a long or short volatility trade through Long or Short Straddles based on their view on volatility and price action.

In simple terms, in a Long Straddle, a trader buys an ATM call and put option of the same strike and expiry of Infosys in expectation of a move of more than ±5.9% on either side. Conversely, in a Short Straddle a trader will sell an ATM call and put of same strike and same expiry if he or she expects a move less that ±5.9%.

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

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