The Hindu Business Line : Grasim: Outlook negative, sell November futures

BoB: The stock closed at Rs 172 in the spot market. The outlook could turn negative if the stock moves below Rs 170. The downside price target is Rs 152.

Sell November futures after the stock moves below Rs 170 in the spot market. Initiate the position with spot-market-stop-loss at Rs 175. The risk-return trade-off is favourable. The position has to be traded with trailing stops to control the upside risk. The margin on the futures position is approximately 21 per cent of the contract value. The minimum order size is 1,400 units.

Alternative strategies using call options are not optimal. The reason is that options do not provide volatility capture. This increases the negative convexity risk. Put options are not actively traded. Setting up spreads will, hence, be difficult.

Grasim: The stock closed at Rs 1,125 in the spot market. The outlook appears negative. The downside price target is Rs 1,075.

Sell November futures. The near-month contract trades at eight-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 1,155. The position has to be traded with trailing stops to control the upside risk. The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 350 units. No alternative strategies are available, as options on the stock are not actively traded. The open interest position as a percentage of the market-wide limit is just over 10 per cent.

(Note: The opinion expressed in this column is based on technical analysis. There is risk of loss in trading.)

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