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B. Venkatesh

THE following strategies are based on Tuesday's trading in the spot and the derivatives segment on the NSE. Both strategies take advantage of a possible decline in the underlying based on the daily price charts.

Trading on this recommendation is risky, as it is counter-directional to the broad market. The position has to be, hence, traded with strict protective stops to control the upside risk.

HDFC: The stock closed at Rs 775 in the spot market. The outlook may turn negative if the stock trades below Rs 768. In the event, the stock could move to Rs 735.

Sell February futures after the stock moves below Rs 768 in the spot market. Initiate the position with spot-market-stop-loss at Rs 787 or at the day's high at the time the position is initiated, whichever is higher. The short position has to be traded with trailing stops.

The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 600 units. Alternative strategies are not available, as options on the stock are not actively traded.

Ranbaxy Labs: The stock closed at Rs 1,079 in the spot market. The outlook appears negative. The downside price target is Rs 977.

Sell February futures. The near-month contract trades at 4-point discount to the spot price. Initiate the position with spot-market-stop-loss at Rs 1,088.

Thereafter, the position has to be traded with trailing stops. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 400 units. Option-based strategies are sub-optimal because calls do not provide volatility capture.

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

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