The Hindu Business Line : Nifty, Tata Steel may turn positive

THE following strategies are based on Wednesday's trading in the spot and the derivatives segments on the NSE. The positions are constructed to payoff from possible short-term reversal in the underlying. The strategy is, therefore, risky and has to be traded with trailing stops.

The recommendation is valid only for 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.

Nifty: Buy January futures after the spot index moves above 2,032. Initiate the position with spot-market-stop-loss at 1,990 or at the day's low at the time the position is initiated, whichever is lower.

Note that the initial protective stop is far away from the current level.

The risk-return ratio is nevertheless healthy. The margin on the futures position is approximately 10 per cent of the contract value. The minimum order size is 200 units.

Traders can construct ratio call spread as alternative strategy. This position can be initiated with one long January 2030 calls and two short January 2,090 calls.

The position can be set up for a net debit of 8 points. The spread will payoff 8 points net if the spot index moves to the upside target within the trading horizon.

Tata Steel: Buy January futures after the stock moves above Rs 369 in the spot market.

Initiate the position with spot-market-stop-loss at Rs 358 or the day's low at the time the position is initiated, whichever is lower.

The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 1,350 units.

Traders can construct ratio call spread as alternative strategy. This position can be initiated with one long January 370 calls, one short January 390 calls and one short January 400 calls. The position can be set up for a net debit of one point. The spread will payoff 7 points if the stock reaches the upside price target within 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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