The Hindu Business Line : BoB: Outlook positive, buy January futures

Cipla: The stock closed at Rs 264 in the spot market. The outlook may turn positive if the stock moves above Rs 268. The upside price target would then be Rs 298.

Buy January futures after the stock moves above Rs 268 in the spot market. Initiate the position with spot-market-stop-loss at Rs 258. Traders can alternatively place a protective stop at the day's low at the time the position is initiated. Thereafter, the position has to be traded with trailing stops to control the downside risk. The margin on the futures position is approximately 19 per cent of the contract value. The minimum order size is 1,000 units.

Traders can construct ratio call spread as alternative strategy. This position can be initiated with one long January 270 calls and two short January 300 calls. The spread can be set up for a net debit of 4 points. The position will payoff 14 points net if the stock moves to the upside price target within five to six trading sessions. The payoff will improve if the stock reaches the price target at or near option expiration, as the position is theta-positive.

Bank of Baroda: The stock closed at Rs 209 in the spot market. The outlook appears positive. The upside price target is Rs 227.

Buy January futures. The near-month contract trades at 2-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 202. Alternatively, a protective stop can be placed at the day's low at the time 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 1,400 units. The margin on the futures position is approximately 23 per cent of the contract value. Option-based strategies cannot be constructed, as the contracts are trading rich.

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

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