The Hindu Business Line : Tata Tea: Outlook positive, buy December futures

Consider buying the December futures on the stock. Initiate the position with an initial stop-loss of Rs 258. The position will be exposed to 19-point risk. Alternatively, the long futures position can be hedged with the December 270 puts, which currently cost 7 points. The profit-loss ratio is, however, not attractive for the hedged position.

If the stock rises to Rs 342 at the horizon, the long December futures may generate 65 points per unit (1,100 units per contract). If the stock triggers the stop-loss of Rs 258, the position will lose 19 points per unit. The margin requirement is approximately 17 per cent of the contract value. The trading horizon is 19 days.

Bank of Baroda: The stock closed at Rs 184.50 in the spot market. It faces resistance at Rs 195, but appears poised to break that level and move towards Rs 233.

Consider buying the December futures on the stock. Switch to the January contract after it becomes actively traded. Initiate the position with an initial stop-loss at Rs 178. This exposes the position to a 7-point risk. A tighter stop-loss is required because the outlook on the stock could turn negative it breaks this level. It may not be cost-effective to hedge the 7-point risk with the near-month puts.

If the stock rises to Rs 233 at the horizon, the long December/January futures will generate 45 points per unit (1,400 units per contract). If the stock triggers the stop-loss of Rs 178, the position will lose 10 points. The payoffs assume a rollover cost of 3 points; this is typically the price differential between the current month and the next month futures contract. The margin requirement is approximately 27 per cent of the contract value. Note that the futures are trading at Re 1 discount to the spot price, though the latter carries Rs 3 interim dividend. The trading horizon is 25 days.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Volatile movement

Hardens on revamp talk

Jain Irrigation promoters to divest 6.26 pc stake — Reinvest proceeds in pref issue

Sustained momentum seen in Sesa Goa

Tata Tea: Outlook positive, buy December futures

Upward march continues after yo-yoing