Financial Daily from THE HINDU group of publications
Friday, Jul 30, 2004
Financial Daily from THE HINDU group of publications Friday, Jul 30, 2004 |
||
|
|
||
|
Markets
-
Derivatives Markets Columns - On the hedge GAIL: Outlook positive, buy August futures B. Venkatesh
THE following strategies are based on Tuesday's trading in the spot and the derivatives segments on the NSE: Tata Motors: The stock closed at Rs 405 in the spot market. The outlook appears negative. The downside price target is Rs 374. Sell August futures. The near-month contract trades at a three-point premium to the spot price. Initiate the position with spot market stop loss at Rs 419. The position has to be traded with trailing stop-loss to control the upside risk. The margin on the futures position is approximately 18 per cent of the contract value. The minimum order size is 825 units. An alternative strategy would be to construct bear put-spread. This can be initiated with long August 420 puts and short August 390 puts. The position can be set up for a net debit of 16 points. The spread suffers from marginal theta risk, the reason being that the long put will not rapidly lose value due to time decay if the stock reaches the downside price target even on option expiration. Besides, the short put will be theta positive. This works in the spread's favour. GAIL: The stock closed at Rs 197 in the spot market. The outlook appears positive. The upside price target is Rs 210. Buy August futures. The near-month contract trades at a five-point discount to the spot price. Initiate the position with spot market stop loss at Rs 185. This exposes the position to high downside risk. This risk cannot be cost-effectively hedged with horizon-matching puts. The position has to be traded with trailing stop-loss to control the risk. The margin on the futures position is approximately 24 per cent of the contract value. The minimum order size is 1,500 units. An alternative strategy would be to buy August 200 calls. The option trades for six points. The position suffers from theta risk. The implication is that the payoff will be better if the stock reaches the upside price target in quick time. Traders can lower the initial outlay by combining short August 220 calls with long August 200 calls.
More Stories on : Derivatives Markets | On the hedge
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2004, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|