Financial Daily from THE HINDU group of publications
Thursday, Aug 05, 2004
Financial Daily from THE HINDU group of publications Thursday, Aug 05, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge ACC: Outlook positive, buy August futures B. Venkatesh
THE following strategies are based on Wednesday's trading in the spot and the derivatives segments on the NSE: ACC: The stock closed at Rs 250 in the spot market. The outlook appears positive. The upside price target is Rs 265. Continual buying could push the stock to Rs 275. Buy August futures. The near-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 243. The position has to be traded with trailing stop-loss to control the downside risk. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 1,500 units. Traders can consider the alternative strategy of constructing bull call-spread. This position can be initiated with long August 250 calls and short August 270 calls. The position can be set up for a net debit of six points. The spread does provide for some volatility capture. The payoff will not be hurt because of time decay. The reason is that the long call will be deep in-the-money if the stock reaches Rs 265 at the trading horizon. Aggressive traders may better served with long futures because of its one-to-one movement with the underlying. HPCL: The stock closed at Rs 325 in the spot market. The outlook appears negative. The downside price target is Rs 300. Sell August futures. The near-month contract trades at 14-point discount to the spot price. Note that the underlying carries a dividend of Rs 16 per share. Initiate the position with spot-market-stop-loss at Rs 337. The recommended view may be negated if the stock cuts 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 19 per cent of the contract value. The minimum order size is 650 units. An alternative strategy would be to construct bear put-spread. This can be initiated with the long August 310 puts and short August 290 puts. The spread can be set up for a net debit of 7 points. The position suffers from high time decay because the long call plus the net debit is close to the price target. The implication is that the position will generate profits only if the stock reaches the downside price target in quick time.
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