The Hindu Business Line : Consider OTM call spreads on ONGC

This price point is important if the stock were to show signs of strength. Ideally, the initial protective stop should be placed at Rs 793. But this stop-loss level is far away from the current level, exposing the capital to high downside risk.

Traders can alternatively place a protective stop at the day's low at the time the position is initiated. Thereafter, the stops should be progressively upgraded 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 300 units.

Traders can set up deep out-the-money (OTM) call spread as an alternative strategy. This position can be initiated with long November 820 calls and short November 840 calls.

The spread can be set up for a net debit of 3 points. The calls are trading rich. Hence, the strategy to set up OTM spread. The benefits of a spread are the gains from long delta and positive theta.

The deep OTM calls help in this regard because long 820 calls will be in-the-money when the stock reaches the price target. At the same time, the short 840 calls will contribute through higher time decay. The spread will generate 9 points if the stock moves to the upside price target in 5 trading days from Wednesday.

Short-term traders can buy futures after the stock moves above Rs 796 in the spot market. The upside price target is Rs 814. The initial spot-market-stop-loss should be Rs 789.

Note that this strategy is valid for a maximum of 3 trading days.

Nifty index: The spot index closed at 1,879. The spot index appears set for a short-term reversal on the daily chart. The index could find support at 1,841 or 1,831. Traders with long Nifty futures position can take profits at the current levels. Futures position can be accumulated when the spot index retraces to the support levels.

It is important that the traders do not short futures at the current level. The reason is that the spot index still appears positive on the daily chart, though the weekly chart does throw some signals to the contrary.

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

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