Financial Daily from THE HINDU group of publications
Tuesday, Jan 04, 2005
Financial Daily from THE HINDU group of publications Tuesday, Jan 04, 2005 |
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Markets
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Derivatives Markets Columns - On the hedge Short-term trend reversal likely in Tata Tea, Hero Honda B. Venkatesh
THE following strategies are based on Monday's trading in the spot and the derivatives segments on the NSE. The positions are structured to take advantage of a possible short-term reversal in the underlying. The strategy is, hence, inherently risky and has to be traded with trailing stops. Importantly, the recommendation is valid for only three trading sessions. If profits are not taken or the position is not stopped, the contract has to be closed at the end of this period. Tata Tea: Sell January futures after the stock moves below Rs 486 in the spot market. Initiate the position with spot-market-stop-loss at Rs 490. Thereafter, trailing stops have to be employed to control the upside risk. The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 550 units. Alternative strategies are not optimal because calls are rich while puts are not actively traded. Setting up bearish call positions to capture volatility may not be optimal, as the position will be exposed to high negative convexity. Hero Honda: Sell January futures after the stock moves below Rs 601 in the spot market. Initiate the position with spot-market-stop-loss at Rs 606. The position has to be traded with trailing stops to control the upside risk. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 400 units. 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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