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B. Venkatesh

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

ONGC: The May futures contract closed at 874. The outlook may turn negative if the May contract trades below 860.50. The downside target is 810.

Sell May futures after it trades below 860.50. Initiate the position with protective stop at 880. Trail the stop 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 300 units. The open interest position is about 10 per cent of the market-wide limit.

Traders can alternatively construct ratio put spread. This position can be initiated with one long May 860 puts, one short May 820 puts and one short May 800 puts. The spread can be set up for a net debit of 5-6 points. The spread will payoff 18-20 points if the stock reaches the price target of Rs 815.

GAIL: The May futures contract closed at 216.40. The outlook may turn negative if the May contract trades below 214.55. The downside target is 202-200.

Sell May futures after it trades below 214.55. Initiate the position with protective stop at 221. Trail the stop 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 1,500 units. The open interest position is about 30 per cent of the market-wide limit.

Traders can alternatively construct bear call spread. This position can be initiated with one short May 220 calls and one long May 230 calls. The spread will fetch a net credit of 3-4 points. The entire premium can be kept if the stock reaches the downside price target. Since the spread suffers from negative convexity, it may be optimal to close the position if the stock breaks above Rs 223.

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

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