The Hindu Business Line : Price reversal likely in Hindustan Lever, HDFC

HLL: The stock closed at Rs 143 in the spot market. The outlook may turn positive if the stock moves above Rs 146. The upside price target would then be Rs 151.

Buy December futures after the stock moves above Rs 146 in the spot market. Initiate the position with spot-market-stop-loss at Rs 143. 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 2,000 units.

Traders can construct ratio call spread as alternative strategy. This position can be initiated with one long December 140 calls and three short December 150 calls. The spread can be set up for a net debit of 2 points. The position would payoff 8 points if the stock reaches the upside price target before option expiration. Note that the position has to be necessarily closed if the stock moves above Rs 151. Otherwise, the payoff will be sub-optimal because the short calls will work against the position.

HDFC: The stock closed at Rs 769 in the spot market. The outlook may turn positive if the stock moves above Rs 782. The upside price target is Rs 799.

Buy December futures after the stock moves above Rs 782 in the spot market. The initial protective stop should be placed at the day's low at the time the position is initiated. Thereafter, the position can 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 600 units.

Traders with shorter trading horizon can buy December futures after the stock moves above Rs 769.50 in the spot market. The upside price target is Rs 785. The initial protective stop should be placed at Rs 764. Note that this recommendation is valid for only three trading sessions. The position has to be closed if profits are not taken or the contract is stopped out within this period. No alternative strategies are available, as options on the stock are not actively traded.

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

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