Financial Daily from THE HINDU group of publications
Wednesday, Dec 17, 2003
Financial Daily from THE HINDU group of publications Wednesday, Dec 17, 2003 |
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Markets
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Derivatives Markets Columns - On the hedge Hero Honda: Outlook negative, short Jan futures B. Venkatesh
THE following strategies are based on Tuesday's trading in the spot and the derivatives segment on the NSE: Hero Honda: The outlook on this stock is negative. The downside price target is Rs 337. Consider shorting the January futures on the stock. Initiate the position with buy stop at Rs 404. The position will be exposed to 16-point risk. This risk cannot be hedged with horizon-matching calls because the farther-month options are not traded yet. If the stock declines to Rs 337 at the horizon, the short January futures will generate 50 points per unit (800 units per contract). If the stock triggers the buy stop at Rs 404, the position will lose 16 points per unit. The position has to be traded with dynamic buy stops to minimise losses. The margin requirement is approximately 20 per cent of the contract value. The open interest position as a percentage of the market-wide limit is about 20 per cent. The trading horizon is 25 days. Dr Reddy's Labs: The stock currently trades at Rs 1,361 in the spot market. The outlook on the stock could turn negative if the price moves below Rs 1,305 in the spot market. In the event, the price could drift to Rs 1,130. Consider shorting the January futures if the stock cuts Rs 1,305 on the downside. If the stock declines to Rs 1,135 at the horizon, the short January futures will generate 175 points per unit (400 units per contract). The position has to be traded with dynamic buy stops. This is because the short futures position cannot be hedged with horizon-matching calls. The margin requirement is approximately 20 per cent of the contract value. The open interest position as a percentage of the market-wide limit is about 10 per cent. The trading horizon is 26 days.
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