Financial Daily from THE HINDU group of publications
Thursday, Jan 29, 2004
Financial Daily from THE HINDU group of publications Thursday, Jan 29, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge Buy IOC Feb futures B. Venkatesh
THE following strategies are based on Wednesday's trading in the spot and the derivatives segments on the NSE: IOC: The stock closed at Rs 464 in the spot market. The outlook appears positive. Consider buying the February futures on the stock. Initiate the position with sell stop at Rs 450. This exposes the position to an initial downside of 14 points. This downside risk cannot be hedged because options on the stock are not actively traded. The position has to be traded with trailing sell stops. Otherwise, the risk will be high because of the contract-multiplier factor (600 units per contract). The margin is approximately 15 per cent of the contract value. The open interest position as a percentage of the market-wide limit is above 20 per cent. National Aluminium: The stock closed at Rs 159 in the spot market. The outlook appears positive. Consider buying the February futures on the stock. Initiate the position with sell stop at Rs 153. The position could yield sub-optimal payoff if the stock triggers the sell stop and then bounces back. The likelihood of such a price movement is high because the sell stop is very close to the current price level. Alternatively, traders can fix the initial sell stop at Rs 146. That will expose the position to 16-point downside. The downside risk is high because of the high contract-multiplier factor (2,300 units per contract). The margin is approximately 60 per cent of the contract value. The open interest position as a percentage of the market-wide limit is above 80 per cent.
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