Financial Daily from THE HINDU group of publications
Friday, Mar 04, 2005
Financial Daily from THE HINDU group of publications Friday, Mar 04, 2005 |
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Markets
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Derivatives Markets Columns - On the hedge Short-term swing likely in Bajaj Auto, ICICI Bank B. Venkatesh
THE following strategies are based on Thursday's trading in the spot and the derivatives segments on the NSE. These strategies are structured to take advantage of short price swings in the underlying. Setting up such positions is, therefore, risky because they may run counter to the primary trend. Money management in the form of protective stops is important. The recommendation is typically valid for only two trading sessions. However, given the high underlying volatility, it is best that the traders do not carry their positions overnight. Bajaj Auto: The stock closed at Rs 1,089 in the spot market. Sell March futures if the stock trades below Rs 1,090 in the spot market. Initiate the position with spot-market-stop-loss at Rs 1,099 or at the day's low at the time the position is initiated, whichever is higher. The downside price target is Rs 1,080 and then Rs 1,061. 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. No alternative strategies are available, as options on the stock are not actively traded. ICICI Bank: Sell March futures after the stock trades below Rs 397 in the spot market. Initiate the position with spot-market-stop-loss at Rs 400 or the day's high at the time the position is initiated, whichever is higher. The downside target range is Rs 393-391. The position has to be traded with trailing stops. Otherwise, the upside risk will be high, as the contract-multiplier is 1,400 units. The margin on the futures position is approximately 17 per cent of the contract value. It is not optimal to set up options-based positions because the price target is not far away from the recommended entry level. (The opinion expressed in this column is based on technical analysis. There is risk of loss in trading.)
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