Financial Daily from THE HINDU group of publications
Wednesday, Sep 22, 2004
Financial Daily from THE HINDU group of publications Wednesday, Sep 22, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge HPCL: Outlook positive, buy October futures B. Venkatesh
THE following strategies are based on Tuesday's trading in the spot and the derivatives segment on the NSE: HPCL: The stock closed at Rs 337 in the spot market. The outlook appears positive. The upside price target is Rs 356. Buy October futures. The farther-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 324. 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 650 units. Traders can construct bull call-spread as an alternative strategy. This position can be initiated with long September 330 calls and short September 350 calls. The spread can be set up for 7 points. The position provides some volatility capture. Besides, it does not suffer much from time decay. The reason is that the long call will be deep in-the-money and will, hence, carry low time value if the stock reaches the price target before option expiration. The payoffs will be better if the stock reaches the upside price target at or near option expiration, as the short call is theta-positive. Bajaj Auto: The stock closed at Rs 961 in the spot market. The outlook appears positive. The upside price target is Rs 990. Buy October futures. The farther-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 949. The position has to be traded with trailing stop-loss. Otherwise, the downside risk will be high, as the contract-multiplier is 400 units. The margin on the futures position is approximately 16 per cent of the contract value. No alternative strategies are available, as options on the stock are not actively traded.
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