The Hindu Business Line : ICICI Bank's outlook negative, sell July futures

Tata Steel: The stock closed at Rs 301 in the spot market. The outlook could turn negative if the stock trades below Rs 297. In the event, the stock could decline to Rs 278.

Sell July futures. The near-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 310. The reason is that the outlook may change if the stock trades above that level. The position has to be traded with trailing stop-loss to control the upside risk. The margin on the futures position is approximately 26 per cent of the contract value. The minimum order size is 900 units.

Traders can also consider constructing a vertical bear-spread. The position can be constructed with long July 300 calls and short July 280 calls. The spread can be set up for a net debit of 8 points. The spread suffers from high theta risk. The implication is that the spread will gain most if the stock reaches the downside price target in quick time. Note that the maximum loss on the spread is marginally lower than the stop-loss limit on the futures position.

ICICI Bank: The stock closed at Rs 245 in the spot market. The outlook appears negative. The near-term downside price target is Rs 235. The stock could further decline to Rs 221 if selling pressure continues. Note that the stock faces stiff resistance at Rs 255.

Sell July futures. The near-month contract trades at one-point discount to the spot price. Initiate the position with spot-market-stop-loss at Rs 252. The position has to be traded with trailing stop-loss. Otherwise, the upside risk is high because the contract-multiplier is 1,400 units. The margin on the futures position is approximately 22 per cent of the contract value. No alternative strategies are available because options on the stock are not actively traded. Traders who hold long position in the underlying can consider writing the July 260 calls. Note that this is purely an income-enhancing strategy and not a hedge.

More Stories on : Derivatives Markets | On the hedge

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
STP goes into action today

Century Ply gets ready for BSE, NSE listing

Bears prevail

HSE trading to resume today

Siemens scrip attracts buyers on Budget sop buzz

HFCL gains on huge volumes

Cross deal in ONGC

ICICI Bank's outlook negative, sell July futures

SEBI turns down PMS bid of Wealth Management Advisory

Sensex runs out of steam