The Hindu Business Line : Price reversal likely in Infosys, Bajaj Auto

Infosys: The stock closed at Rs 2,031 in the spot market. The outlook could turn positive if the stock moves above Rs 2,048. The upside price target is Rs 2,100. Continual buying could push the stock to Rs 2,168.

Buy December futures after the stock moves above Rs 2,048 in the spot market. Initiate the position with spot-market-stop-loss at Rs 2,011. The position has to be traded with trailing stops 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 200 units.

Traders can construct ratio call spread as alternative strategy. This position can be initiated with one long December 2070 calls and two short December 2130 calls. The spread can be set up for a net credit of eight points. Note that the spread should be set up to work for a target of Rs 2,100. The position will be exposed to high risk otherwise because the short call is ratioed and will in-the-money if the stock reaches Rs 2,168. The payoff will be better if the stock moves to Rs 2,100 at or near expiration because the spread is theta-positive.

Bajaj Auto: The stock appears set for a short-term reversal. Buy December futures after the stock moves above Rs 1,022 in the spot market. Initiate the position with spot-market-stop-loss at Rs 1,015. Note that the stock tends to exhibit high intra-day volatility. A tight stop would lead to sub-optimal strategy. The position has to be traded with trailing stops.

The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 400 units. This strategy is valid for only three days from the date of initiation. If the profits are not taken or the position is not stopped, the contract has to be closed at the end of this period.

Traders can also take position for a longer term. The long futures position can be initiated after the stock moves above Rs 1,048. The upside price target is Rs 1,068. Note that the stock could run up further if it breaks this level. Traders should, however, run this long position with trailing stops.

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

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