Financial Daily from THE HINDU group of publications
Wednesday, Nov 10, 2004
Financial Daily from THE HINDU group of publications Wednesday, Nov 10, 2004 |
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Markets
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Derivatives Markets Columns - On the hedge Short-term price reversal likely in BHEL, HDFC B. Venkatesh
THE following strategies are based on Tuesday's trading in the spot and the derivatives segment on the NSE. These strategies have been designed to take advantage of short-term price reversals. The position has to be strictly closed on the third day, if the price target is not reached or the position is not stopped. Note that the price targets are based on the spot prices. Traders run the risk of the futures price not moving in tandem with the spot price. BHEL: Traders can buy November futures if the stock moves above Rs 617 in the spot market. The upside price target is Rs 627. An aggressive target is Rs 637. The position has to be initiated with spot-market-stop-loss at Rs 610. It is best to move the protective stop to break-even price after the stock moves up. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 600 units. Traders can construct synthetic long as alternative strategy. This position can be initiated with long November 620 calls and short November 620 puts. The position can be set up at zero cost, as the put premium can fund the call premium. The position will generate 7 points if the stock reaches the price target on or before Moorat trading. Note that traders with one week trading horizon can also take long futures position on BHEL. The position should be initiated after the stock moves above Rs 634 in the spot market. The upside price target is Rs 646. HDFC: Traders can sell November futures if the stock moves below Rs 705 in the spot market. The downside price target is Rs 680. The position has to be initiated with protective stop at Rs 710. Trailing stop should be employed 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 600 units. Alternative strategies are not 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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