Financial Daily from THE HINDU group of publications
Tuesday, Feb 17, 2004
Financial Daily from THE HINDU group of publications Tuesday, Feb 17, 2004 |
||
|
|
||
|
Markets
-
Derivatives Markets Columns - On the hedge BSES: Outlook positive, buy March futures B. Venkatesh
THE following strategies are based on Monday's trading in the spot and the derivatives segments on the NSE: BSES: The stock closed at Rs 667 in the spot market. The outlook appears positive. The upside price target is Rs 725. Consider buying the March futures on the stock. Initiate the position with sell stop at Rs 642. This exposes the position to an initial downside risk of 25 points. This risk cannot be hedged with puts, as options on the stock are not actively traded. The position has to be traded with trailing sell stops. Otherwise, the downside risk is high because the contract-multiplier is 1,100 units. The farther-month futures contract trades at a 6-point discount to the near-month contract. The margin on the long futures position 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. HCL Tech: The stock closed at Rs 303 in the spot market. The near-term outlook appears positive. The upside price target is Rs 330. Consider buying the February futures on the stock. Initiate the position with sell stop at Rs 291. The position has to be traded with trailing sell stops. Otherwise, the downside risk is high, as the contract-multiplier is 1,300 units. Traders who prefer to initiate long call position instead of long futures should note that the options on the stock are trading rich. This subjects the position to error in forecasting volatility. The implication is that the position will be subject to high risk due to change in the volatility of the underlying. Besides, the position is exposed to high theta risk. The payoff, hence, depends on the stock's upside price acceleration. The margin on the long futures position is approximately 30 per cent of the contract value. The open interest position as a percentage of the market-wide limit is less than 20 per cent.
More Stories on : Derivatives Markets | On the hedge
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2004, 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
|