The Hindu Business Line : Set up long positions on IOC, Tata Tea on price breakout

IOC: The stock closed at Rs 438 in the spot market. The outlook could turn positive if the stock moves past Rs 446. In the event, the stock could drift to Rs 457 and then to Rs 470.

Buy October futures after the stock moves past Rs 446 in the spot market. Initiate the position with spot-market-stop-loss at Rs 434.

If traders set up the futures position to work for a target of Rs 457, the spot-market-stop-loss can be placed at the day's low at the time the position is initiated.

The position has to be traded with trailing stop-loss to control the downside risk. The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 600 units. No alternative strategies are available, as options on the stock are not actively traded.

Tata Tea: The stock closed at Rs 424 in the spot market. The outlook is positive but the uptrend will be faster after the stock moves past Rs 429. On the upside, the stock could move to Rs 444.

Buy October futures after the stock moves above Rs 429 in the spot market. Initiate the position with spot-market-stop-loss at Rs 421.

The position has to be traded with trailing stop-loss. Otherwise, the downside risk will be high, as the contract-multiplier is 550 units.

The margin on the futures position is approximately 16 per cent of the contract value.

Traders should note that alternative strategies with options are not optimal. The reason is that the options are trading rich. This subjects the long call positions to high vega risk. Short puts or spread positions cannot be set up because these contracts are not actively traded.

One alternative is to set up a synthetic long with long October 430 calls and short October 430 puts. The position will carry net credit if set up now but runs a high risk. This position can also be set up after the stock moves past Rs 430.

(Note: The opinion expressed in this column is based on technical analysis. There is risk of loss in trading.)

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