The Hindu Business Line : Outlook could turn negative for SBI

SBI: The stock closed at Rs 496 in the spot market. The outlook could turn negative if the stock trades below Rs 494. The downside price target is Rs 473.

Sell November futures after the stock trades below Rs 494 in the spot market. Initiate the position with spot-market-stop-loss at Rs 505. Traders can alternatively place a stop at the day's low at the time the position is initiated. The position has to be traded with trailing stops to control the upside 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 construct bear put-spread as alternative strategy. This position can be initiated with long November 490 puts and short November 470 puts. The spread can be set up for 4 points. The position carries marginal theoretical edge. Setting up a delta-neutral vertical spread will, hence, not be optimal. The position will carry 12 points if the stock reaches the price target within 5 trading sessions. The spread benefits from time decay. The implication is that the payoff will be better if the stock reaches the price target on option expiration.

HCL Tech: The stock closed at Rs 359 in the spot market. The outlook could turn positive if the stock trades above Rs 359. The upside price target is Rs 375.

Buy November futures after the stock trades above Rs 359 in the spot market. Initiate the position with spot-market-stop-loss at Rs 355. The position has to be traded with trailing stops. Otherwise, the downside risk will be high, as the contract-multiplier is 1,300 units. The margin on the futures position is approximately 17 per cent of the contract value. This strategy will be valid for one trading week.

Traders can also set up long positions with two to three-weeks time horizon. Such long futures position should be initiated only after the stock moves above Rs 367 in the spot market. A protective stop should be initially placed at Rs 355. The upside price target is Rs 407. Note that the price levels refer to the weekly chart. 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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