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B. Venkatesh

THE following strategies are based on the spot and the derivatives segment on the NSE:

Tata Power: Buy January futures after the stock moves above Rs 353 in the spot market. The upside price target is Rs 373. Initiate the position with spot-market-stop-loss at Rs 347.

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 800 units.

This strategy is based on a likely short-term reversal in the underlying. The recommendation is, hence, valid for only three trading sessions from the date of initiation. If profits are not taken or the position is not stopped, the contract has to be closed at the end of the trading horizon.

Traders can construct ratio call spread as alternative strategy.

This position can be initiated with one long January 360 calls, one short January 380 calls and one short January 390 calls. The spread can be set up for less than one point. The position would payoff 5 points net if the stock reaches the price target within the trading horizon.

MTNL: The stock closed at Rs 143 in the spot market. The outlook may turn positive if the stock moves above Rs 146. The upside price target would then be Rs 170.

Buy January futures after the stock moves above Rs 146 in the spot market.

Initiate the position with spot-market-stop-loss at Rs 140. The position has to be traded with trailing stops.

Otherwise, the downside risk will be high, as the contract-multiplier is 1,600 units. The margin on the futures position is approximately 21 per cent of the contract value.

Traders can construct ratio call spread as alternative strategy. This position can be set up with one long January 150 calls and two short January 170 calls.

The spread can be set up for a net debit of 2 points. The position would payoff 7-8 points if the stock reaches the upside price target within 5-7 days.

The payoff will improve if the stock reaches the price target on option expiration, as the position is theta-positive.

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

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