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B. Venkatesh

THE following strategies are based on Wednesday's trading in the derivatives segment on the NSE:

Reliance Industries: The March futures contract closed at 578. The outlook may turn positive if futures trades above 581. The upside target is 605.

Buy March futures after it trades above 581. Initiate the position with protective stop at 568. Trail the stop to control the downside risk. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 600 units.

Traders can alternatively construct ratio call spread. This position can be initiated with one long March 580 calls and two short March 600 calls. The spread can be set up for one point. The payoff will be 8-9 points net if the stock reaches the price target in 6-7 trading sessions. The payoffs will be considerably lower if the stock reaches the price target in quick time. The reason is that the short calls will then carry higher time value. Selling one each of March 600 and 620 calls instead of two 600 calls may not improve the risk-reward ratio. Note that the payoff for the options position is based on the underlying moving to Rs 602.

Tata Tea: The March futures contract closed at 530. The outlook may turn positive if it trades above 535. The upside target is 557.

Buy March futures after it trades above 535. Initiate the position with protective stop at 525. Trail the stop to control the downside risk. The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 550 units. 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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