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B. Venkatesh

THE following strategies are based on Wednesday's trading in the spot and the derivatives segment on the NSE.

Dr Reddy's Labs: The stock closed at Rs 799 in the spot market. The outlook may turn positive if the stock moves above Rs 824. The upside price target would then be Rs 873.

Buy January futures after the stock moves above Rs 824 in the spot market. Initiate the position with spot-market-stop-loss at Rs 795. Note that the risk-return 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 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 construct a ratio call spread as an alternative strategy. This position can be initiated with one long January 820 calls, one short December 860 calls and one short December 880 calls. The position can be set up for 3-4 points net debit. The spread will generate a maximum payoff if the stock reaches the upside price target at expiration. Then, the two short calls will be worthless, while the long call will be deep in-the-money. The spread can generate about 15-20 points within the trading horizon.

BPCL: The stock closed at Rs 454 in the spot market. The outlook may turn positive if the stock moves above Rs 460. The upside price target would then be Rs 475.

Buy January futures after the stock moves above Rs 460 in the spot market. Initiate the position with spot-market-stop-loss at Rs 446. This protective stop does make the risk-return trade-off somewhat unattractive. Traders can alternatively place a stop at the day's low when the position is initiated.

The position has to be traded with trailing stops. Otherwise, the downside risk will be high, as the contract-multiplier is 550 units. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 200 units.

Alternative strategies are not 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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