Financial Daily from THE HINDU group of publications
Saturday, Mar 05, 2005
Financial Daily from THE HINDU group of publications Saturday, Mar 05, 2005 |
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Markets
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Derivatives Markets Columns - On the hedge Short-term swing likely in Reliance Ind, Wipro B. Venkatesh
THE following strategies are based on Friday's trading in the spot and the derivatives segments on the NSE.
These strategies are constructed to take advantage of short-term swings in the underlying. Setting up such positions is, hence, 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 two trading sessions. However, given the high underlying volatility, it is best that the traders do not carry their positions overnight. Reliance Industries: The stock closed at Rs 572 in the spot market. Sell March futures if the stock trades below Rs 570 in the spot market. The downside target range is Rs 563-560. Initiate the position with spot-market-stop-loss at Rs 577 or at the day's low at the time the position is initiated, whichever is higher. The risk-return trade-off is not favourable. 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 the target range is not far away from the recommended entry price. Wipro: The stock closed at Rs 720 in the spot market. Sell March futures if the stock trades below Rs 718 in the spot market. The downside target range is Rs 710-705. Initiate the position with spot-market-stop-loss at Rs 725 or at the day's high at the time the position is initiated, whichever is higher. Thereafter, the position has to be traded with trailing stops. Otherwise, the upside risk will be high, as the contract-multiplier is 600 units. The margin on the futures position is approximately 17 per cent of the contract value. 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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