• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

B. Venkatesh

THE following strategies are based on Monday's trading in the derivatives segment on the NSE:

Equity options

M&M: The outlook on this stock is negative. The downside price target is Rs 206. The upside risk level is Rs 247.

Consider shorting October futures on the stock. The position will be subject to 9-point risk. This risk cannot be cost-effectively hedged.

The position has to be, hence, initiated with strict stop-buy limits.

The highest such limit has to be Rs 245; for the outlook on the stock may turn positive if it cuts that level.

If the stock declines to Rs 206 at the horizon, the October short futures will generate 30 points per unit (2,500 units per contract). If the stock rises to Rs 245, the position will lose 9 points.

The payoff does not include the margin on the contract value. The trading horizon is 12 days.

NIIT: The outlook on this stock is negative. The downside price target is Rs 110. The upside risk level is Rs 166.

Note that the open interest position as a percentage of the market-wide limit is above 60 per cent.

Consider shorting the October futures on the stock. At the current level, the position will be subject to 17-point risk. This risk cannot be cost-effectively hedged because the call options on the stock are trading rich.

The position has to be initiated with strict stop-buy limits.

If the stock declines to Rs 110 at the horizon, the October short futures will generate 39 points per unit (1,500 units per contract).

If the stock rises to Rs 166, the position will lose 17 points per unit.

The trading horizon is 25 days.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Identifying the right one

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line