The Hindu Business Line : BPCL: Outlook negative, sell October futures

Sell October futures. The farther-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 374. The position has to be traded with trailing stop-loss to control the upside risk. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 550 units.

Traders can construct bear put-spread as an alternative strategy. This position can be initiated with long September 360 puts and short September 350 puts. The spread can be set up for a net debit of 3 points. The payoff will be high if the stock reaches the downside price target on option expiration because the long call will then be in-the-money while the short call will be theta-positive.

Note that the payoff will not be more than 5 points if the stock reaches the price target before expiration.

Those who hold the underlying can sell the September 370 calls against the stock. It would be optimal to sell the call for 8 points, as that would provide some volatility capture. The covered call-write is an income-enhancing strategy and not a hedge.

Canara Bank: The stock closed at Rs 147 in the spot market. The outlook appears positive. The upside price target is Rs 152 but the stock could drift to Rs 163, which is its next resistance level.

Buy October futures. The farther-month contract trades at one-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 143. The position has to be traded with trailing stop-loss.

Otherwise, the downside risk will be high as the contract-multiplier is 1,600 units. The margin on the futures position is approximately 29 per cent of the contract value.

An alternative strategy would be to construct bull call-spread. This position can be initiated with the long September 145 calls and short September 155 calls. The position can be set up for a net debit of 2 points. The spread provides marginal volatility capture. Note that the position does not suffer much from time decay.

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