The Hindu Business Line : Tata Motors: Initiate long position on price breakout

Tata Motors: The stock closed at Rs 392 in the spot market. The price movements in recent trading sessions present buying opportunities for both the short-term and medium-term traders.

The short-term trader can go long in November futures if the stock moves above Rs 393 in the spot market. The price target is Rs 407. The spot-market-stop-loss should be placed at Rs 389. The medium-term trader can go long if the stock moves above Rs 410. The price target is Rs 424. The spot-market-stop-loss should be placed at the day's low at the time the position is initiated. Both the short-term (1 to 4 days) and medium-term (4 days to 2 weeks) positions have 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 825 units.

Alternative strategies with options are not optimal. Aggressive traders can, however, consider selling the October 390 puts. This strategy will fetch 3.5 points. Note that the naked short put suffers from high negative convexity.

The position will, however, benefit from positive theta. Moreover, the option will decay fast because the option expires on Thursday.

Cipla: The stock closed at Rs 270 in the spot market. The outlook could turn positive if the stock moves above Rs 274.

The upside price target is Rs 289.

Buy November futures after the stock moves above Rs 274 in the spot market. Initiate the position with spot-market-stop-loss at Rs 266. Alternatively, traders can place the stop at the day's low at the time the position is initiated. This strategy could, however, be sub-optimal if the stop is close to the initiated price. The position has to be traded with trailing stop-loss to control the downside risk. The margin on the futures position is approximately 20 per cent of the contract value. The minimum order size is 1,000 units. No alternative strategies are 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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