Financial Daily from THE HINDU group of publications
Saturday, Oct 16, 2004
Financial Daily from THE HINDU group of publications Saturday, Oct 16, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge Hindalco: Outlook positive, buy Oct futures B. Venkatesh
THE following strategies are based on Friday's trading in the spot and the derivatives segment on the NSE: SBI: The stock closed at Rs 466 in the spot market. The outlook could turn positive if the stock trades above Rs 470. In the event, the stock could move to Rs 491. Buy October futures after the stock moves above Rs 470 in the spot market. Initiate the position with spot-market-stop-loss at Rs 463. 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 500 units. Traders can alternatively construct synthetic long position in the stock. This position can be initiated with long October 470 calls and short October 470 puts. The position can be set up for a net credit of 2 to 4 points. The position will deliver handsome gains if the stock reaches the upside price target before option expiration. Note that the position is subject to downside risk because of the naked short put. Aggressive traders can sell the October 460 puts after the stock moves above Rs 470 in the spot market. This position, however, suffers from negative convexity. Hindalco: The stock closed at Rs 1,244 in the spot market. The outlook appears positive. The upside price target is Rs 1,368. Buy October futures. The near-month contract trades at 7-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 1,205. Note that the risk-reward trade-off is attractive even though the absolute stop level is far away from the current price. 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 300 units. Alternative strategies are not available, as options on the stock are not actively traded.
(Note: The opinion expressed in this column is based on technical analysis. There is risk of loss in trading.)
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