Financial Daily from THE HINDU group of publications
Wednesday, Mar 17, 2004
Financial Daily from THE HINDU group of publications Wednesday, Mar 17, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge HCL Tech: Outlook positive, buy March futures 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 270 in the spot market. The outlook appears positive. The upside price target is Rs 289. Consider buying the March futures on the stock. The near-month contract trades on par with the spot price. Initiate the position with spot-market-spot-loss at Rs 260. This exposes the underlying to 10-point downside risk. The position has to be traded with trailing stop-loss. Otherwise, the risk is high because the contract-multiplier is 1,300 units. The margin on the long futures position is approximately 25 per cent of the contract value. Traders do not have the alternative strategy of initiating long calls instead of long futures because options on the stock are not actively traded. The open interest position as a percentage of the market-wide limit is just above 10 per cent. ITC: The stock closed at Rs 1,076 in the spot market. The outlook appears negative. The downside price target is Rs 1,010. Consider selling the March futures on the stock. The near-month contract trades at two-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 1,098. This exposes the underlying to 22-point upside risk. This risk is high but cannot be hedged. The position has to be, hence, traded with trailing stop-loss. The minimum order size is 300 units. The margin on the short futures position is approximately 20 per cent of the contract value. Traders cannot initiate long puts because options on the stock are not actively traded. The open interest position as a percentage of the market-wide limit is about 20 per cent. Traders who hold long position in the spot market can also consider selling near-month futures to hedge their position for the near-term.
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