Financial Daily from THE HINDU group of publications
Tuesday, Mar 02, 2004
Financial Daily from THE HINDU group of publications Tuesday, Mar 02, 2004 |
||
|
|
||
|
Markets
-
Derivatives Markets Columns - On the hedge Tata Tea: 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: Tata Tea: The stock closed at Rs 367 in the spot market. The outlook appears positive. The upside price target is Rs 400. Consider buying the March futures on the stock. Initiate the position with stop-loss at Rs 350. This exposes the position to a 17-point downside risk. This position cannot be hedged with horizon-matching puts, as the options on the stock are not actively traded. The position has to be traded with trailing stop-loss limits. The margin on the long futures position is approximately 20 per cent of the contract value. The minimum order size is 1,100. Traders should note that initiating long calls instead of long futures might not be profitable because the options are trading rich. This exposes the position to high risk due to change in the volatility of the underlying. The total open interest position as a percentage of the market-wide limit is just over 20 per cent. M&M: The stock closed at Rs 474 in the spot market. The outlook appears positive. The upside price target is Rs 500. Consider buying the March futures on the stock. Initiate the position with stop-loss at Rs 458. This exposes the position to a 16-point downside risk. This risk cannot be hedged with horizon-matching puts because options are trading rich. The position has to be traded with trailing stop-loss. Otherwise, the downside risk will be high because the contract-multiplier is 2,500 units. The margin on the long futures position is approximately 25 per cent of the contract value. Initiating a long call position may not be optimal because of the high theta-gamma trade-off. This means that the position will rapidly lose value if the stock's upside speed is slow. The total open interest position as a percentage of the market-wide limit is about 35 per cent of the market-wide limit.
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
|