The Hindu Business Line : Short-term price swing likely in BHEL, Hero Honda

THE following strategies are based on Monday's trading in the spot and the derivatives segments on the NSE. The strategies are structured to take advantage of a possible short-term price swing in the underlying.

The strategy is inherently risky because it may run counter to the primary trend. Traders should, hence, adopt protective stops as money management tool. The recommendation is valid for only two trading sessions from the date of initiation. If profits not taken or the position is not stopped, the contracts have to be closed at the end of three days.

BHEL: The sharp increase in the stock price in recent times accompanied by higher volumes suggests buying exhaustion. Sell February futures after the stock trades below Rs 868 in the spot market. The downside price target is Rs 851. Initiate the position with spot-market-stop-loss at Rs 875 or at the day's high at the time the position is initiated, whichever is higher. 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 600 units. Option-based strategies are not optimal because the target price is not far away from the current price.

Hero Honda: Sell February after the stock trades below Rs 565 in the spot market. The downside price target is Rs 550. Initiate the position with spot-market-stop-loss at Rs 572 or at the day's high at the time the position is initiated, whichever is higher. 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. Alternative strategies are not 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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