Financial Daily from THE HINDU group of publications
Saturday, Mar 13, 2004
Financial Daily from THE HINDU group of publications Saturday, Mar 13, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge ICICI Bank: Outlook positive, buy March 300 calls B. Venkatesh
THE following strategies are based on Friday's trading in the spot and the derivatives segments on the NSE: BHEL: The stock closed at Rs 588 in the spot market. The outlook appears positive. The upside price target is Rs 628. Consider buying the March futures on the stock. The near-month contract trades on par with the spot price. Initiate the position with stop-loss at Rs 580. This exposes the position to eight-point downside risk. The position has to be traded with trailing stop-loss. Otherwise, the downside risk will be high because the contract-multiplier is 1,200 units. The margin on the long futures is approximately 20 per cent of the contract value. Traders can alternatively buy the March 600 calls. Note that the maximum loss on the long call position will be higher than the initial downside risk on the future position. The calls will be profitable even if the stock reaches the upside price target on option expiration. The reason is that the upside price target is far above the strike price and the call premium. ICICI Bank: The stock closed at Rs 282 in the spot market. The outlook appears positive. The upside price target is Rs 315. Consider buying the March 300 calls. The option is trading rich. This exposes the position to high risk due to change in the volatility of the underlying. The position will be profitable even if the stock reaches the price target on option expiration. The reason is that the upside price target is far above the strike price plus the option premium. The minimum order size is 1,400 units. Traders can also buy March futures. The near-month contract trades at four-point discount to the spot price. Initiate the position with stop-loss at Rs 274. This exposes the position to eight-point downside risk. The position has to be traded with trailing stop-loss. Note that the downside risk is higher for the long futures position. The margin on the long futures is approximately 20 per cent of the contract value.
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