The Hindu Business Line : Outlook negative for Reliance, HCL Tech

Sell October futures. The farther-month contract trades at 3-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 507. The position has to be traded with trailing stop-loss to control the upside risk. The margin on the futures position is approximately 16 per cent of the contract value. The minimum order size is 600 units.

Traders can construct a bear put-spread as an alternative strategy. This position can be initiated with long September 500 puts and short September 480 puts. The spread can be set up for a net debit of 6 points.

The payoff will be handsome if the stock reaches the downside price target before option expiration. The reason is that the long put will be deep in-the-money while the short put will be theta-positive when the stock reaches the price target. Note that the spread does not provide volatility capture.

HCL Tech: The stock closed at Rs 351 in the spot market. The outlook appears negative. The downside price target is Rs 332.

Sell October futures. The farther-month contract trades at one-point discount to the spot price. Initiate the position with spot-market-stop-loss at Rs 358. Traders willing to assume higher risk can place a stop at Rs 361. The position has to be traded with trailing stop-loss. Otherwise, the upside risk will be high, as the contract-multiplier is 1,300 units. The margin on the futures position is approximately 17 per cent of the contract value.

No alternative strategies are available, as options on the stock are not actively traded. Traders who hold the underlying can sell the September 360 calls for not less than 4.5 points. Otherwise, the call-writing strategy will not provide volatility capture. Note that the covered call-write is just an income-enhancing strategy and not a hedge.

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