The Hindu Business Line : Outlook may turn positive for HLL

HLL: The stock closed at Rs 155.45 in the spot market. The outlook may turn positive if the stock moves above Rs 157.40. In the event, the stock could move to Rs 170.

Buy March futures after the stock moves above Rs 157.40 in the spot market. The next month contract is preferred to the near-month because of low term premium. This provides the trader more time to realise the price target with minimal cost. Initiate the position with trailing stops. Otherwise, the downside risk will be high, as the contract-multiplier is 2,000 units. The margin on the futures position is approximately 17 per cent of the contract value.

Traders can alternatively construct ratio call spread. This position can be initiated with one long February 155 calls and two short February 170 calls. The spread can be set up for a net debit of 3 points. The position would payoff 5 points net if the stock reaches the price target in just five trading sessions. The payoff will improve significantly if the stock reaches the target on option expiration. The reason is that the spread delta is negative, meaning the position benefits from time decay.

TCS: The stock closed Rs 50 higher in the spot price. The price pattern on the daily charts suggests that the stock may see a short-term price reversal. Sell February futures if the stock trades below Rs 1,381 in the spot market. The downside price target is Rs 1,367.

Initiate the position with spot-market-stop-loss at Rs 1,390. 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 250 units.

Note that this recommendation is valid for only two 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 end of the third day. Option-based strategies will not be optimal because the target price is not far away from the current price.

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

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