The Hindu Business Line : Outlook may turn positive for Tata Power

Tata Power: The stock closed at Rs 345 in the spot market. The outlook may turn positive if the stock trades above Rs 347. In the event, the upside price target will be Rs 378.

Buy February futures after the stock moves above Rs 347 in the spot market. Initiate the position with spot-market-stop-loss at Rs 340. Traders can alternatively place a protective stop at the day's low at the time the position is initiated. The position has to be traded with trailing stops to control the downside risk. The margin on the futures position is approximately 21 per cent of the contract value. The minimum order size is 800 units.

Traders can construct call spread as alternative strategy. This position can be initiated with long February 340 calls and short February 380 calls. The spread can be set up for a net debit of 14 points. The position can pay-off 27 points if the stock reaches the upside price target in 5-7 trading sessions. Note that a ratio spread (one long 340 calls and two short 380 calls) is not optimal because of negative option delta at the horizon.

Shipping Corporation: The stock moved up sharply in the spot market. Short-term traders can set up futures position to take advantage of a likely price reversal. Sell February futures after the stock trades below Rs 153 in the spot market. The downside price target is Rs 145. Initiate the position with spot-market-stop-loss at Rs 156 or at the day's low at the time the position is set up, whichever is higher. Thereafter, the position has to be traded with trailing stops to control the upside risk. The margin on the futures position is approximately 19 per cent of contract value. The minimum order size is 1,600 units.

This recommendation is valid for just 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 horizon. Option-based strategies are not optimal because the price target is not far away from the current level.

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

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