F&O strategy: How to trade in Nestle India ahead of its Q1 results?
Upstox
3 min read • Updated: April 25, 2024, 10:32 AM
Summary
Open interest data of Nestle India’s 30 May expiry shows significant call and put at the 2500 strike. The combined premium of both the call and put comes at ₹140. This means, the traders are expecting a movement of ±5.6% ahead of the 30 May expiry.
The FMCG major Nestle India will announce its first-quarter results of CY24 on 25 April and the results will be announced during the market hours.
Nestle India follows the January to December financial year and the street is expecting the net profit to increase to ₹856 crore, up 22% on a year-on-year basis. However, the stock recently slipped 4% after the reports emerged that the company added sugar to infant milk and cereals in India but not in European markets.
The shares of Nestle India settled at ₹2,500 on 24 April.
Technical view
Nestle India clawed back its gains after a recent 4% dip on 18 and 19 April and took support at its 200-day moving average (DMA). However, the stock is currently witnessing a selling pressure near its 50-DMA, which is acting as immediate resistance.
Moreover, the stock has formed a doji candlestick pattern on the daily chart near its 50-DMA, which is considered as a neutral pattern. Traders can monitor the following day's close; a close below or above the doji will signal the continuation or the rejection of the ongoing trend.
Options positioning
Open interest data of Nestle India’s 30 May expiry shows significant call and put at the 2500 strike. Considering the at-the-money (ATM).) strike of 2500, the combined premium of both the call and put comes at ₹140. This means, the traders are expecting a movement of ±5.6% ahead of the 30 May expiry from the closing price of 24 April.
To better understand the price behaviour, let's take a look at how Nestle India 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 ±5.6%, 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 Nestle India, with the aim of profiting from a move of more than ±5.6% 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 Nestle India will remain within a range of ±5.6% 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.