The Hindu Business Line : Outlook may turn negative for Maruti, HCL Tech

Maruti Udyog: The stock closed at Rs 450 in the spot market. The outlook may turn negative if the stock trades below Rs 445. In the event, the stock could move to Rs 415 and then to Rs 389. Sell February futures after the stock moves below Rs 445 in the spot market.

Initiate the position with spot-market-stop-loss at Rs 457. The position has to be traded with trailing stops to control the upside risk. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 400 units.

Traders can construct ratio put spread as alternative strategy. This position can be initiated with one long February 450 puts, one short February 420 puts and one short February 400 puts. The spread can be set up for not more than 6 points. If the stock reaches Rs 415 before February 11, the spread can payoff 12 points net.

Note that the spread also benefits from volatility capture, as the OTM puts are trading rich.

HCL Tech: The stock closed at Rs 338 in the spot market.

The outlook may turn negative if the stock trades below Rs 333. In the event, the stock could move to Rs 323 and then to Rs 313. Sell February futures after the stock moves below Rs 333 in the spot market.

Initiate the position with spot-market-stop-loss at Rs 343. The protective stop exposes the position to high upside risk. Setting up short futures position for a price target of Rs 323 is, therefore, not very attractive. The position has to be traded with trailing stops. Otherwise, the upside risk will be high, as the contract-multiplier is 1,300 units. The margin on the futures position is approximately 19 per cent of the contract value.

Option-based strategies are not optimal. The reason is that puts on the stock are not actively traded. It is not optimal to set up bear call spreads either, as the position does 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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