Playing Tata Motors before results

Tata motors results are expected today and if you look at the options volume and to the implied volatility for PE 230 and CE 260 expiring 30 Aug 2012 which is around 44% respectively.

Tata motors have been quite volatile during results, and though the company is showing significant improvements in terms of Jaguar volumes, there are always concerns around margins.

There is a clear opportunity to play a long strangle or long straddle. However, the long straddle trade 240 PE and 240 CE is quite expensive and given that there could be a significant volatility, out of the money options 230 PE and 260 CE can be bought at premium of 4.50 and 4.60 respectively. There will be an outgo of around INR 9K (1 Tata Motors lot at NSE=1000 shares) with a profit potential of around INR 10k+. Maximum loss is limited to the amount equal to premium paid to buy these options.