The Hindu Business Line : Short-term reversal likely in Gujarat Ambuja, i-flex

The positions are structured to generate payoffs from possible short-term reversal in the underlying. The strategy is, therefore, inherently risky and has to be traded with trailing stops. 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.

Gujarat Ambuja: Sell January futures after the stock moves below Rs 426 in the spot market. Initiate the position with spot-market-stop-loss at Rs 430. Note that the stock has exhibited high degree of volatility in the last few trading sessions. There is, hence, a strong likelihood of the position being stopped if a tighter stop-loss is placed.

Note that the risk-return ratio is attractive despite the protective stop being far away from the current price. The position has to be traded with trailing stops to control the upside risk. The margin on the futures position is approximately 14 per cent of the contract value. The minimum order size is 1,100 units. It is not optimal to set up alternative strategies with options, as the target price is not far away from the current price.

i-flex Solutions: Sell January futures after the stock moves below Rs 673 in the spot market. Initiate the position with spot-market-stop-loss at Rs 684. The position has to be traded with trailing stops to control the upside risk. The margin on the futures position is approximately 12 per cent of the contract value. The minimum order size is 300 units. No alternative strategies are possible, 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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