The Hindu Business Line : Short turn likely in Satyam, Nalco

THE following strategies are based on Tuesday's trading in the derivatives segment on the NSE. These strategies are constructed to take advantage of short-term swings. 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 risk of holding short positions in this market, it is best that the trades are not carried overnight.

Satyam Computer: The March futures contract has risen from 401 to a high of 419 in 5 trading sessions. The trading pattern suggests that the futures price may see a short turn. Sell the near-month contract if it trades below 417. The downside target range is 411-409. Initiate the position with protective stop at 421 or at the day's high at the position is initiated. Note that the stop should be placed at higher of the two levels. The risk-reward trade-off is, hence, not attractive. The position should 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 1,200 units. It is not optimal to set up options-based position, as the target is not far away from the recommended entry level.

National Aluminium (NALCO): The March futures contract closed at 190, up 14 points from Monday's close. Sell March futures if it trades below 188. The downside target is 181. Initiate the position with protective stop at 192. Trail the stop to control the upside risk. Note that the contract has flared up on the back of strong buying. This buying can continue on Wednesday, which means that the futures could initially gap up.

In the event, the initial protective stop should be placed at the day's high at the time the position is initiated, if that level is higher than 192. The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 1,150 units.

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

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