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B. Venkatesh

THE following strategies are based on Monday's trading in the spot and the derivatives segment on the NSE:

Tata Power: The stock closed at Rs 390 in the spot market. The outlook appears negative. The downside price target is Rs 375. Continual selling can push the stock down to Rs 335.

Sell February futures. The near-month contract trades at 3-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 400. The position has to be traded with trailing stops to control the upside risk. The margin on the futures position is approximately 20 per cent of the contract value. The minimum order size is 800 units.

Traders can construct ratio put spread as alternative strategy. It would be optimal to set up the position with one long February 390 puts and two short February 360 puts. This could help the position benefit from increase in volatility as the stock trends down.

Note that ATM puts gain most from increase in volatility, and February 390 puts is near-ATM. The position can be set up for a net debit of 7 points.

The spread will payoff 6 points net if the stock moves to Rs 375 within 5 trading sessions.

IOC: The stock closed at Rs 472 in the spot market. The outlook may turn negative if the stock trades below Rs 468. In the event, the stock may decline to Rs 450 and then to Rs 432.

Sell February futures after the stock trades below Rs 468 in the spot market. Initiate the position with spot-market-stop-loss at Rs 481. The position has to be traded with trailing stops to control the upside risk. The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 600 units.

No alternative strategies are available, as options on the stock are not actively traded.

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

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