The Hindu Business Line : Reliance Industries: Outlook positive, buy August futures

Reliance Industries: The stock closed at Rs 497 in the spot market. The outlook appears positive but the upside speed would be faster after the stock moves past Rs 504. In the event, the stock could drift to Rs 524 and then to Rs 545.

Buy August futures after the stock trades above Rs 504. Initiate the position with spot-market-stop-loss at Rs 495. 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 600 units.

Traders can consider the alternative strategy of constructing bull call-spread. This can be initiated with long August 500 calls and short August 520 calls. The spread can be set up for a net debit of 7 points. The strategy of having the short call inside the price target helps in lowering the initial outlay. The spread does not suffer from high theta risk.

The reason is that the long call will carry low time value if the stock reaches the upside price target. Note that the spread does not help in volatility capture, as the short call is not trading rich.

i-Flex Solution: The stock closed at Rs 546 in the spot market. The outlook appears positive. The upside price target is Rs 590. An aggressive price target would be Rs 615.

Buy August futures. The near-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 537. Aggressive traders can place a stop at Rs 520. 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 300 units. No alternative strategies are possible because options on the stock are not actively traded.

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