The Hindu Business Line : Downtrend persists on Nagarjuna Fertlizers, Suzlon

I am only a seasonal trader in stock market and I enter futures whenever the technical charts and graphs break down continuously breaching important support levels. I will enter such stock futures and exit in between the technical pull back rally. Last week, I entered Nagarjuna Fertilizer (2 lots) at Rs 28 and Suzlon (2 lots) at Rs 60. I want to know how to use option strategies for Nagarjuna Fertilizer and Suzlon blending with my futures position for additional windfall gains (willing to take high risks); and also I am interested to know how to hedge the above futures positions using options (margin money is not a problem for me) to minimise any loss whenever chances of any negative breakouts happen due unforeseen circumstances. – Jeejo Raveendran

Nagarjuan Fertilizers: The stock is still in the negative trend. Only a move above 34-35 on a closing day basis would negate the current downtrend. In that event, it has the potential to reach 42-44. However, any reversal from current level could take the stock to 22-23 or might even touch 15.

If you believe that the stock would go up, then you can consider buying call or writing (selling) put to enhance your profitability. The risk in buying call is the value of option premium would be eroded in case the stock moves down or remains flat (due to time value). However, if the stock moves up, as you are expecting, then this will ensure additional profitability.

The risk in writing put is the loss could be unlimited while maximum profit is limited to the premium earned. And, it also involves higher margin money.

Both these strategies could erode your value (along with futures) considerably in case the stock moves against your position. You can consider buying Nagarjuna Fert 30 call or selling Nagarjuna 30 put; the former ended at Rs 2.1 and the latter at Rs 1.4.

Suzlon Energy: This stock is also in negative trend as long it stays below 88-90. A drop below 62 could weaken the stock to 42 initially and then to 35-36. The stock finds immediate resistance at 73. You can consider buying 65 call or writing 65 put to enhance your profits. The Suzlon 65 call closed on Friday at 5.8 and the put at 4.3. However, it is not wise to adopt option strategy if the stock moves in single direction, as you are expecting. It is better to adjust the stop-loss progressively to protect your profit in futures position. Besides, not all stock options are active. As far as hedging is concerned, you can buy put to mitigate your losses in case of adverse turnaround.

Consider buying Nagarjuna Fert 30 put (other strikes on the put are not active) and Suzlon 60 put.

K.S. Badri Narayanan

NOTE: The analysis and opinion expressed in this column are based on F&O data available at this point of time and on technical analysis based on past price movements. There is risk of loss in trading.

Feedback may be sent to f&o@thehindu.co.in

More Stories on : Derivatives Markets | Stock Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Arabian Sea ‘low’ may ramp up to depression status

‘Every downturn has its bright spots, and we see India as one’

PM bets on domestic demand to spur growth

Bid soon for Rs 5,000-cr mega highway project

ONGC may be allowed to sell C-series field gas at $4.75

Tata Power Company (Rs 1271.5): Sell

Day Trading Guide

Ad spends outpace sales growth for FMCG cos

Per-employee revenues, profits rise in IT firms

Is it the right time to purchase gold?

Comex gold may correct lower

Gold retains potential as safe investment haven

Complex issue of capital controls

Profit-booking may push indices downwards

Downtrend persists on Nagarjuna Fertlizers, Suzlon

Wal-Mart looking to open 40 more stores: Sharma