Financial Daily from THE HINDU group of publications
Wednesday, Feb 04, 2004
Financial Daily from THE HINDU group of publications Wednesday, Feb 04, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge Outlook negative for HCL Tech, PNB B. Venkatesh
THE following strategies are based on Tuesday's trading in the spot and the derivatives segments on the NSE: HCL Tech: The stock closed at Rs 300 in the spot market. The outlook appears negative, but the downtrend will be confirmed if the stock gaps down on Wednesday. The stock touched a low of Rs 293 on Tuesday. If the downtrend is confirmed, the stock could decline to Rs 270. Consider shorting the February futures if the stock gaps down on Wednesday. Initiate the position with buy stop at Rs 306. The position has to be traded with trailing buy stops. Otherwise, the short futures position will be exposed to large upside risk because the contract-multiplier is high (1,300 units per contract). Note that the upside risk cannot be hedged with horizon-matching calls because options on the stock are not traded actively. The February futures contract trades on par with the spot price, but the latter carries Rs 2 interim dividend. The margin on the short futures position is approximately 30 per cent of the contract value. PNB: The stock closed at Rs 238 in the spot market. The outlook appears negative, but the downside price acceleration would increase if the stock cuts Rs 230. The downside price target is Rs 220. Consider shorting the February futures on the stock. Cautious traders can short futures after the stock cuts below Rs 230. The position has to be initiated with trailing buy stops. The upside risk cannot be cost-effectively hedged with near-month calls. This exposes the position to high risk because the contract-multiplier is high (1,200 units per contract). The margin is approximately 40 per cent of the contract value.
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