Financial Daily from THE HINDU group of publications
Thursday, Dec 04, 2003
Financial Daily from THE HINDU group of publications Thursday, Dec 04, 2003 |
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Markets
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Derivatives Markets Columns - On the hedge Tata Power: Outlook may turn negative B. Venkatesh
THE following strategies are based on Wednesday's trading in the spot and the derivatives segments on the NSE: Single-stock futures Tata Power: The stock closed at Rs 281 in the spot market. The outlook on the stock could turn negative if the price in the spot market declines below Rs 270. In the event, the stock could drift to Rs 201. Consider a short January futures position if the stock declines below Rs 270 in the spot market. The position has to be initiated with dynamic stop-loss limit. Hedging with horizon-matching calls is not possible because options on the stock are not actively traded. Note that the open interest position as a percentage of the market-wide limit is nearly 60 per cent.If the stock drifts to Rs 201, the position will gain 78 points per unit (1,600 units). The margin requirement is approximately 20 per cent of the contract value. The trading horizon is 24 days. Wipro: The stock closed at Rs 1,581 in the spot market. The outlook on the stock could turn positive, if the price moves above Rs 1,750 in the spot market. In the event, the stock could move to Rs 2,332 during the trading horizon. Consider long January futures position if the stock moves above Rs 1,750 in the spot market. The position has to be initiated with dynamic stop-loss limits. The open interest position as a percentage of the market-wide limit is only 17 per cent. Note that futures is trading at only a marginal premium to the spot price. If the stock moves to Rs 2,332 at the horizon, the long January futures will generate 580 points (200 units per contract). The margin requirement is approximately 26 per cent of the contract value. The trading horizon is 29 days.
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