The Hindu Business Line : Outlook may turn positive for Infosys

Infosys: The stock closed at Rs 2,063 in the spot market. The outlook may turn positive if the stock moves above Rs 2,085. The upside price target would then be Rs 2,140.

Buy December futures after the stock moves above Rs 2,085 in the spot market. Initiate the position with spot-market-stop-loss at Rs 2,061. Alternatively, the stop-loss can be placed at the day's low at the time the position is initiated. Thereafter, 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 alternatively construct synthetic short position. This can be initiated with long December 2070 calls and short December 2070 puts. The synthetic short can be set up for net debit of 6 points. The position would payoff 70 points if the stock reaches the upside price target on or before option expiration. Note that the synthetic short is subject to high risk because of the negative convexity of the short put. It is best to stop the position if the stock moves below Rs 2,050.

Bank of India: The stock may see a short-term price reversal. The downside price target is Rs 83. Sell December futures after the stock moves below Rs 92.90 in the spot market. Initiate the position with spot-market-stop-loss at Rs 95 or the day's high at the time the position is initiated, whichever is higher. The position has to be traded with trailing stops. The margin on the futures position is approximately 19 per cent of the contract value. The minimum order size is 3,800 units. Note that the contract has to be closed at the end of the three days if profits are not taken or the position is not stopped out within this period.

Traders can construct bear call spread as alternative strategy. This position can be initiated with one short December 90 calls and one long December 95 calls. The spread can be set up for net credit of 3 points. The objective is to capture premium because options are trading rich. The spread will collapse to zero if the stock declines below Rs 90 or trades above Rs 95. The maximum loss is 2 points, which will occur if the stock trades at Rs 95 at the trading horizon.

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

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