The Hindu Business Line : Outlook negative for Maruti, SCI

Maruti Udyog: The stock closed at Rs 393 in the spot market. The outlook appears negative. The downside price target is Rs 372. Continual selling could push the stock to Rs 355.

Sell September futures. The near-month contract trades at one-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 402. The position has to be traded with trailing stop-loss to control the upside risk. The margin on the futures position is approximately 11 per cent of the contract value. The minimum order size is 400 units.

Traders can construct bear put-spread as an alternative strategy. This position can be initiated with long September 390 puts and short September 370 puts. The spread can be set up for a net debit of 7 points. The position could payoff 12-14 points if the stock reaches the downside price target. The spread does not suffer much from time decay. Note that the position does not offer volatility capture because the options are not trading rich.

Shipping Corporation: The stock closed at Rs 126 in the spot market. The outlook appears negative. The downside price target is Rs 113.

Sell September futures. The near-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 130. The position has to be traded with trailing stop-loss. Otherwise, the upside risk will be high because the contract-multiplier is 1,600 units. The margin on the futures position is approximately 11 per cent of the contract value.

Traders can create synthetic short as an alternative strategy. This position can be initiated with long September 125 puts and short September 125 calls. The synthetic short should be set up for a net credit of 1-2 points. The position will be exposed to losses if the stock trades above Rs 126-127.

Note that this is an aggressive strategy and exposes the trader to high risk if the stock moves up. Traders who hold the underlying can initiate the synthetic short, as the risk will be lower.

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