Financial Daily from THE HINDU group of publications
Friday, Dec 10, 2004
Financial Daily from THE HINDU group of publications Friday, Dec 10, 2004 |
|
|
|
|
|
Markets
-
Derivatives Markets Columns - On the hedge Outlook may turn positive for Tata Motors, PNB B. Venkatesh
THE following strategies are based on Thursday's trading in the spot and the derivatives segment on the NSE: Tata Motors: The stock closed at Rs 490 in the spot market. The outlook could turn positive if the stock moves above Rs 492. The upside price target is Rs 502. Continual buying could push the stock to Rs 520. Buy December futures after the stock moves above Rs 492 in the spot market. Initiate the position with spot-market-stop-loss at Rs 484. 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 825 units. A bull call-spread appears to be the optimal alternative strategy because the upside target is not far away from the current price level. This position can be initiated with long December 490 calls and short December 510 calls. The position can be set up for a net debit of 7 points. The spread will payoff 10-11 points if the stock moves to Rs 502. Note that the spread is somewhat insensitive to time decay because the short call will be theta-positive until the stock trades below Rs 510. PNB: The stock closed at Rs 360 in the spot market. The outlook could turn positive if the stock moves above Rs 365. The upside price target is Rs 387. Buy December futures after the stock moves above Rs 365 in the spot market. Initiate the position with spot-market-stop-loss at Rs 359. The position has to be traded with trailing stops. Otherwise, the downside risk will be high because the contract-multiplier is 1,200 units. The margin on the futures position is approximately 21 per cent of the contract value. Traders can alternatively construct ratio call spread. This position can be initiated with one long December 360 calls and two short December 390 calls. The spread can be set up for a net debit of 2 points. The position would payoff 14-15 points if the stock reaches the upside price target. Note that the payoff will not be significantly affected by time decay because spread is theta-positive. The ratio spread will improve the payoff by 4-5 points over non-ratioed vanilla call spread.
(The opinion expressed in this column is based on technical analysis. There is risk of loss in trading.)
More Stories on : Derivatives Markets | On the hedge
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2004, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|