Financial Daily from THE HINDU group of publications
Thursday, Sep 16, 2004
Financial Daily from THE HINDU group of publications Thursday, Sep 16, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge ACC: Outlook positive, buy Sept. futures B. Venkatesh
THE following strategies are based on Wednesday's trading in the spot and the derivatives segment on the NSE: ACC: The stock closed at Rs 275 in the spot market. The outlook appears positive. The upside price target is Rs 281. An aggressive target would be Rs 291. Buy September futures. The near-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 269. 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 set up a synthetic long position as an alternative strategy. This can be initiated with long September 270 calls and short September 270 puts. The synthetic long should be set up for not more than 5 points. The position will not suffer much from time decay. The reason is that the long call will be deep in-the-money while the short put will gain due to positive theta if the stock reaches the upside price target before option expiration. Note that the position is subject to vega risk because the options are trading rich. ICICI Bank: The stock closed at Rs 265 in the spot market. The outlook appears negative. The downside price target is Rs 252. Sell September futures. The near-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 271. The position has to be traded with trailing stop-loss. Otherwise, the upside risk will be high, as the contract-multiplier is 1,400 units. The margin on the futures position is approximately 17 per cent of the contract value. No alternative strategies are available, as options on the stock are not actively traded. Traders who have large exposure in the underlying can sell the September 270 calls. This strategy will fetch 4 points per unit. The short position will carry theoretical edge, as the options are trading rich. Note that the covered call-write is an income-enhancing strategy and not a hedge.
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