The Hindu Business Line : Guj Ambuja Cement: Outlook positive, buy October futures

IPCL: The stock closed at Rs 199 in the spot market. The outlook could turn positive if the stock moves above Rs 203. In the event, the stock could rise to Rs 220.

Buy November futures after the stock moves above Rs 203 in the spot market.

Initiate the position with spot-market-stop-loss at Rs 195. 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 1,100 units.

Traders can construct bull call-spread as alternative strategy. This position can be set up with long October 200 calls and short October 210 calls.

Note that both strikes are in-the-money. The spread will generate 8-10 points if the stock reaches the price target before option expiration.

The payoff will be best if the target is achieved at or near option expiration. Then, the long call will be deep in-the-money and, hence, insensitive to theta, while the short call will be theta-positive.

Note that selling puts is not optimal.

Gujarat Ambuja Cement: The stock closed at Rs 359 in the spot market. The outlook appears positive. The upside price target is Rs 370.

Buy October futures. The near-month contract trades at 2-point premium to the spot price. The position has to be traded with spot-market-stop-loss at Rs 348.

But a far-away stop-loss makes the risk-return payoff unattractive. Risk-averse traders can place the spot-market-stop-loss at the low for the day at the time the contract is initiated. The stop should later be upgraded to break-even price.

The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 1,100 units.

Traders can sell naked puts to capture the high implied-volatility and the positive outlook on the stock.

The October 350 puts is an optimal strike. This option should be sold for not less than 2.5 points. The position enjoys from positive theta and vega. It, however, suffers from negative convexity.

(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
Global equities one step closer!

Reliance MF launches 2 schemes for NRIs

Bears prevail

Eastern Silk at all-time high on growth prospects

Welspun India gains on order talk

Pvt placement talk soon?

Guj Ambuja Cement: Outlook positive, buy October futures

Sustained selling pressure drives Sensex down

Dena Bank gets nod for 2nd public offer

Mahanagar Gas plans IPO before Dec 2005