The Hindu Business Line : Outlook positive for Tata Power, Bharat Electronics

Tata Power: The stock closed at Rs 303 in the spot market. The outlook appears positive. The upside price target is Rs 320. Continual buying can push the stock to Rs 346.

Buy October futures. The farther-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 287.

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 800 units.

Traders can construct bull call-spread as an alternative strategy. This position can be initiated with long September 300 calls and short September 320 calls.

The spread can be set up for a net debit of six points. The payoff will be better if the stock reaches the upside price target on or near option expiration.

The reason is that the spread is theta-positive. That is, the position will gain because the short option will lose more value due to time decay.

Note that the spread can be set up to work for the first price target of Rs 320.

Bharat Electronics: The stock closed at Rs 522 in the spot market. The outlook appears positive. The upside price target is Rs 545.

Buy October futures. The farther-month contract trades at 3-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 516.

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 550 units.

No alternative strategies are available, as options on the stock are not actively traded.

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