Financial Daily from THE HINDU group of publications
Saturday, Feb 21, 2004
Financial Daily from THE HINDU group of publications Saturday, Feb 21, 2004 |
||
|
|
||
|
Markets
-
Derivatives Markets Columns - On the hedge L&T: Outlook negative, buy February 540 puts B. Venkatesh
THE following strategies are based on Friday's trading in the spot and the derivatives segments on the NSE: L&T: The stock closed at Rs 542 in the spot market. The outlook appears negative. The downside price target is Rs 525. Consider buying the February 540 puts. The option is trading rich. This exposes the position to high risk due to the change in the volatility of the underlying. The primary risks are, however, the high directional speed and time decay, as the option will expire three days from Monday. The option will payoff if the stock declines below Rs 533 on expiration. The position is, hence, highly risky. The minimum order size is 1,000. Alternatively, traders can consider selling the February futures on the stock. The near-month contract trades at two-point premium to the spot price. The position has to be initiated with a stop loss at Rs 533, which is the Friday's closing price. The margin on the short futures position is approximately 25 per cent of the contract value. The open interest position as a percentage of the market-wide limit is less than 10 per cent. HDFC Bank: The stock closed at Rs 365 in the spot market. The outlook appears negative. The downside price target is Rs 350. The stock could decline to Rs 330 if selling pressure continues. Consider selling the March futures after the stock declines below Rs 358. The farther-month contract trades at two-point premium to the near-month contract. Initiate the position with stop-loss at Rs 360. Note that upside risk on the short futures position cannot be hedged away with calls because options on the stock are not actively traded. The position has to be, hence, traded with trailing stop-loss. The margin on the short futures position is approximately 15 per cent of the contract value. The open interest position as a percentage of the market-wide limit is less than 5 per cent. The minimum order size is 800.
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
|