F&O Strategy: How to trade Reliance Industries ahead of Q4 results?

After the IT bellwethers, the oil-to-telecom conglomerate Reliance Industries will declare its result on 21 April, Monday. The result will be declared after the market hours and the impact on the stock and the NIFTY50 index will be visible on 23 April.

Since posting its third-quarter results, the stock has jumped 7.5% on a closing basis. The street estimates a slight increase in revenue on a quarter-on-quarter (QoQ) basis. The company’s profitability is expected to experience a double digit increase, primarily driven by its core oil-to-chemical business, which stands to gain from elevated oil prices and improvement in refining margins. Additionally, both Jio and Retail segments are expected to deliver healthy growth on QoQ basis.

Let's look at the technical and options market setup ahead of the earnings announcement.

Technical view

Reliance Industries hit a 52-week high in March 2024. Since then, the stock has traded in a sideways range. The stock is currently trading above both its 20- and 50-day moving averages, which it regained on 19 April (Friday).

As you can see on the chart below, the stock has also formed a hammer candlestick pattern on the daily chart, which is considered as a bullish reversal pattern. However, it is important to note that a reversal pattern is only confirmed by the close of the following trading day. Traders should watch today's close for confirmation of the reversal.

Options positioning

The open interest data of the 25 April expiry has significant call OI at 3000 strike, suggesting that stock may face resistance at this point. On the flip side, the put base is spread between 2800 and 2900 strikes.

As of 19 April, the at-the-money strike price for Reliance Industries is set at 2940, with a total premium of ₹76 for both the call and put options, suggesting an expected price fluctuation of ±2.6%. However, it's important to review the historical price trends of Reliance Industries during its last three quarterly earnings announcements before devising any trading strategies.

How to utilise straddle prices to formulate an options strategy?

The options data suggests a possible price movement of ±2.6%, giving traders the opportunity to strategise based on the implied volatility.

Traders expecting volatility to rise may find the Long Straddle strategy advantageous. This involves buying an at-the-money (ATM) call and put option of Reliance, each of the same strike price and expiry date. The aim of this strategy is to capitalise on large price movements - more than ±2.6% - in either direction.

Alternatively, a Short Straddle strategy could be suitable for traders who are predicting muted volatility. This strategy involves selling an ATM call and put option of Reliance, both of the same strike price and expiry, with the expectation that the price will remain stable within a range of ±2.6% after the earnings release.

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.