The Hindu Business Line : Outlook may turn positive for M&M, OBC

M&M: The stock closed at Rs 528 in the spot market. The outlook may turn positive if the stock moves above Rs 537. The upside price target would then be Rs 563.

Buy January futures after the stock moves above Rs 537 in the spot market. Initiate the position with spot-market-stop-loss at Rs 524. 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 625 units.

Traders can construct ratio call spread as alternative strategy. This position can be initiated with one long January 530 calls, one short January 560 calls and one short January 580 calls. The position can be set up for a net debit of 10 points. The spread will payoff 5 points net if the stock reaches the upside price target in 5 trading sessions. Note that the payoff will be better if the stock reaches the price target at or near option expiration. The reason is that the position is theta-positive. The spread has to be, however, closed if the stock moves above Rs 560.

OBC: The stock closed at Rs 317 in the spot market. The outlook will turn positive if the stock moves above Rs 320. The upside price target would then be Rs 350.

Buy January futures after the stock moves above Rs 320 in the spot market. Initiate the position with spot-market-stop-loss at Rs 310. Thereafter, the position has to be traded with trailing stops. Otherwise, the downside risk will be high, as the contract-multiplier is 1,200 units. The margin on the futures position is approximately 19 per cent of the contract value.

Traders can alternatively construct ratio call spread. This position can be initiated with one long January 320 calls and two short January 350 calls. The spread can be set up for not more than one point. The position would payoff 10 points net if the stock moves to the upside price target in five trading sessions. The spread should be closed if the stock moves above Rs 350 to ensure that the negative delta does not work against the position.

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

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