Financial Daily from THE HINDU group of publications
Thursday, Nov 04, 2004
Financial Daily from THE HINDU group of publications Thursday, Nov 04, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge Outlook may turn negative for BPCL, ACC B. Venkatesh
THE following strategies are based on Wednesday's trading in the spot and the derivatives segment on the NSE: BPCL: The stock closed at Rs 353 in the spot market. The outlook could turn negative if the stock moves below Rs 351. The downside price target is Rs 339. Sell November futures after the stock moves below Rs 351 in the spot market. Initiate the position with spot-market-stop-loss at Rs 357. The protective stop can be moved to the break-even price after the stock declines further. It is optimal to trade the position with trailing stops. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 550 units. No alternative strategies are available, as put options on the stock are not actively traded. The margin of error for forecasting horizon volatility is not enough to set up a bear call-spread. The gain from option theta and vega will be overwhelmed by the position's negative delta and gamma. ACC: The stock closed at Rs 265 in the spot market. The outlook could turn negative if the stock moves below Rs 263 in the spot market. The downside price target is Rs 253. Sell November futures after the stock moves below Rs 263 in the spot market. Initiate the position with spot-market-stop-loss at Rs 267. The position has to be traded with trailing stop-loss. Otherwise, the upside risk will be high, as the contract-multiplier is 1,500 units. The margin on the futures position is approximately 17 per cent of the contract value. Traders can construct bear put-spread as alternative strategy. The position can be initiated with long November 260 puts and short November 250 puts. The spread can be set up for a net debit of 3 points. The spread will generate five-six points if the stock moves to the downside price target at or before the trading horizon (five trading days). Setting up call spreads will not be optimal because the volatility capture is minimal.
(Note: The opinion expressed in this column is based on technical analysis. There is risk of loss in trading.)
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