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

Sell October futures. The near-month contract trades at 2-point premium to the spot price. Initiate the position with spot-market-stop-loss at Rs 549. The position has to be traded with trailing stop-loss to control the upside risk. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 600 units.

Alternative strategies based on options might not be optimal. The reason is that the price target is not too far from the current market price for the option delta to gather speed. Setting up spread positions will not provide enough returns. Naked puts, on the other hand, will suffer from high time risk. Traders who hold the underlying can sell the October 540 calls against the stock. This strategy will fetch 17-20 points. Note that the covered call-write is an income-enhancing strategy and not a protective stop for the underlying.

HCL Tech: The stock closed at Rs 372 in the spot market. The outlook appears negative. The downside price target is Rs 357.

Sell October futures. The near-month contract trades on par with the spot price. Initiate the position with spot-market-stop-loss at Rs 378. 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 should note that the market currently carries an upside bias. Short selling is, hence, risky. The stop-loss levels indicated should, therefore, be followed to control risk.

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

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