Financial Daily from THE HINDU group of publications
Friday, Sep 17, 2004
Financial Daily from THE HINDU group of publications Friday, Sep 17, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge Satyam: Short-term reversal likely B. Venkatesh
THE following strategies are based on Thursday's trading in the spot and the derivatives segment on the NSE: Satyam Computer: The stock closed at Rs 387 in the spot market. It has risen from Rs 342 to Rs 392 during this month. There could be a near-term trend reversal in the stock. On the downside, the stock could move to Rs 378 and then to Rs 372. Note that the outlook remains positive based on the weekly price chart. Sell September futures. The near-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 392. The position has to be traded with trailing stop-loss. Otherwise, the upside risk will be high, as the contract-multiplier is 1,200 units. The margin on the futures position is approximately 17 per cent of the contract value. Traders can construct bear put-spread as an alternative strategy. This position can be initiated with long September 380 puts and short September 370 puts. The position can be set up for a net debit of 3 points. The payoff will be handsome if stock reaches Rs 372 on or before September 20. The spread will lose value due to time decay if the stock reaches the price target towards option expiration. Note that the put spread cannot be set up to work for a price target of Rs 378. The spread's delta and gamma are not large enough to generate profits for that price target. Hindalco: The stock closed at Rs 1,230 in the spot market. The outlook appears positive. The upside price target is Rs 1,267. Buy September futures. The near-month contract trades at 7-point discount to the spot price. Initiate the position with spot-market-stop-loss at Rs 1,191. Note that the risk-return trade-off is not very favourable. The position has to be traded with trailing stop-loss to control the downside risk. The margin on the futures position is approximately 21 per cent of the contract value. The minimum order size is 300 units. No alternative strategies are available, as options on the stock are not actively traded.
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