The Hindu Business Line : ICICI Bank: Outlook negative, sell May futures

Consider selling May futures. The farther-month contract trades at one-point discount to the spot price. The May contract trades at two-point premium to April futures. Traders can capture this premium by selling May futures. The reason is that the premium could narrow as the April contract nears expiration. Initiate the May futures position with spot-market-stop-loss at Rs 299. This exposes the position to seven-point upside risk. The position has to be traded with trailing stop-loss to control the upside risk. The minimum order size is 1,400 units.

Traders can also consider buying April 280 puts instead of selling May futures. The option trades for five points. The position will be profitable even if the stock reaches the downside price target on option expiration. The reason is that the price target is far below the strike plus the premium. Note that the option will generate profits if the stock declines below Rs 286.

i-flex Solutions: The stock closed at Rs 589 in the spot market. The outlook appears negative. The downside price target is Rs 550.

Consider selling April futures. The near-month contract trades at one-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 600. This exposes the position to 11-point upside risk. This risk cannot be hedged. The position has to be, hence, traded with tight stop-loss levels. The minimum order size is 300 units.

Traders should note that alternative strategy of buying puts is not available because options on the stock are not actively traded. Those who hold shares in i-flex can consider hedging their position with short futures. The reason is that the stock is likely to move up after an intermediate downtrend.

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