Financial Daily from THE HINDU group of publications
Wednesday, Jun 02, 2004
Financial Daily from THE HINDU group of publications Wednesday, Jun 02, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge NIIT: Outlook positive, buy June futures B. Venkatesh
THE following strategies are based on Tuesday's trading in the spot and the derivatives segments on the NSE: Tata Power: The stock closed at Rs 265 in the spot market. It has declined from a high of Rs 430 to a low of Rs 235 in recent times. The current uptrend appears to be a retracement to this decline by Rs 195. The immediate outlook for the stock is positive. The upside price target is Rs 281. If the stock trades above this level, it could well move to Rs 292. Note that the stock is yet to complete another leg of decline. The recommended outlook is, hence, a short-term view of the price movement. Buy June futures. The near-month contract trades at 7-point discount to the spot price. Initiate the position with spot-market-stop-loss at Rs 256. This exposes the position to 9-point downside risk. This risk cannot be cost-effectively hedged with horizon-matching puts. The position has to be traded with trailing stop-loss. The margin on the futures position is approximately 40 per cent of the contract value. The minimum order size is 800 units. An alternative strategy would be to construct vertical bull-spread. This can be initiated with long June 260 calls and short June 280 calls. The position can be set up for a net debit of 9 points. The spread will be profitable if the stock trades near the higher strike at the trading horizon. NIIT: The stock closed at Rs 154 in the spot market. The current uptrend from a low of Rs 103 is likely to continue. The stock could move to Rs 171 in the near-term. Buy June futures. The near-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 146. This exposes the position to 8-point downside risk. The position has to be traded with trailing stop-loss to control this risk. The margin on the futures position is approximately 42 per cent of the contract value. The minimum order size is 1,500 units. No alternative strategies are available because options on the stock are not actively traded.
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