The Hindu Business Line : Outlook negative for BHEL, PNB

Sell July futures. The farther-month contract trades at three-point discount to the spot price and at one-point discount to the near-month contract. The July contract is likely to generate more profit points on the downside than the near-month contract because of short-covering and shifting of open positions.

Initiate the position with spot-market-stop-loss at Rs 490. This exposes the position to 10-point upside risk. This risk cannot be cost-effectively hedged with near-month calls; the farther-month calls are not traded yet. Note that the recommended outlook may be negated if the stock trades above Rs 493. The margin on the futures position is approximately 33 per cent of the contract value. The minimum order size is 600 units.

PNB: The stock closed at Rs 260 in the spot market. The outlook appears negative. The downside price target is Rs 247. If selling pressure continues, the stock could decline to Rs 231.

Sell July futures. The farther month contract trades at 10-point discount to the spot price. Initiate the position with spot-market-stop-loss at Rs 270. This exposes the position to a 10-point upside risk. This risk cannot be hedged with horizon-matching calls. The position has to be traded with trailing stop-loss to control the risk. The margin on the futures position is approximately 37 per cent of the contract value. The minimum order size is 1,200 units. No alternative strategies are available, as puts on the stock are not actively traded.

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