Financial Daily from THE HINDU group of publications
Wednesday, Oct 13, 2004
Financial Daily from THE HINDU group of publications Wednesday, Oct 13, 2004 |
||
|
|
||
|
Markets
-
Derivatives Markets Columns - On the hedge Tata Power: Initiate long position after price breakout B. Venkatesh
THE following strategies are based on Tuesday's trading in the spot and the derivatives segment on the NSE: Tata Power: The stock closed at Rs 316 in the spot market. The outlook appears positive, but the uptrend will be speedy if the stock moves past Rs 324. The upside price target is Rs 336. Buy October futures after the stock moves above Rs 324 in the spot market. Placing stop-loss at the previous day's spot-market low of Rs 313 will make the risk-return trade-off unattractive. Traders could, instead, place a protective stop at the low for the day just before the position is initiated. Thereafter, the position has to be traded with trailing stop 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 alternative strategy. This involves buying the October 320 calls and selling the October 340 calls. The calls are trading at their underlying historical volatility. The vega risk is, hence, low. The position is largely insensitive to the theta effect because the time decay of the long call will be neutralized by the positive theta of the short call. The payoff will be best, if the stock reaches the upside price target at expiration. Then, the long call will be deep in-the-money, while the short call will carry no value. Note that it is not optimal to sell puts to capture premiums. Bank of Baroda: The stock closed at Rs 165 in the spot market. The near-term outlook appears positive. The stock could move to Rs 171 and then to Rs 176. Buy October futures after the stock moves past Rs 166 in the spot market. Initiate the position with spot-market-stop-loss at Rs 163. The position has to be closed at Rs 171. Stretching the target to Rs 176 could be risky. Traders can protect their position by moving their stop-loss to the break-even price after the stock moves up. The margin on the futures position is approximately 20 per cent of the contract value. The minimum order size is 1,400 units. Alternative strategies using options are not optimal because the price target is not far away from the current market price. (Note: The opinion expressed in this column is based on technical analysis. There is risk of loss in trading.)
More Stories on : Derivatives Markets | On the hedge
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2004, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|