The Hindu Business Line : Outlook negative for Ranbaxy, Nifty; positive for OBC

Ranbaxy Labs: The May futures contract closed at 983. The outlook may turn negative if it trades below 978.55. The downside target range is 910-905.

Sell May futures after it trades below 978.55. Initiate the position with protective stop at 998. Trail the stop to control the upside risk. A less aggressive strategy would be to initiate a short futures position after the May contract trades below 960. In the event, the initial protective stop can be placed at 985. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 200 units. No alternative strategies are available, as options on the stock are not actively traded.

Oriental Bank: The May futures contract closed at 258.45. The outlook may turn positive if it trades above 260.40. The upside target range is 268-271.

Buy May futures after it trades above 260.40. Initiate the position with protective stop at 253. Trail the stop to control the downside risk. The margin on the futures position is approximately 20 per cent of the contract value. The minimum order size is 200 units. The open interest position is about 65 per cent of the market-wide limit. It will not be optimal to set up options-based strategies because the price target is not far away from the recommended entry price.

Nifty: The May futures contract closed at 1976.75. The outlook may turn negative if it trades below 1967. The downside target range is 1947-1940.

Setting up a short futures position for the above-mentioned target may be optimal for all traders. The reason is that the protective stop has to be placed at 1992, which makes the risk-return trade-off unattractive. Position traders could, however, initiate a short position in May contract and then roll to the June contract for a downside target range of 1880-1875. Note that the risk associated with this position is high. The margin on the futures position is approximately 10 per cent of the contract value. The minimum order size is 100 units.

Traders can alternatively construct a ratio put spread. This spread can be initiated with one long May 1970 puts, one short May 1920 puts and one short May 1900 puts. The spread can be set up for a net debit of 10-11 points. The position will payoff 10-12 points net if the Nifty futures reaches the downside target. Note that the options position has been set up to work for the 1947-1940 target on the Nifty futures rather than the underlying because of the large negative basis.

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

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