The Hindu Business Line : Outlook may turn positive for Infosys, Mastek

Mastek: The stock closed at Rs 332 in the spot market. The outlook will turn positive if the stock moves past Rs 339. In the event, it could move to Rs 380.

Buy November futures after the stock moves above Rs 339 in the spot market. Initiate the position with spot-market-stop-loss at Rs 325. Note that the stop-loss is far away from the suggested entry price. Yet, the risk-reward trade-off is attractive. Of course, the capital-at-risk is large because the contract-multiplier is 1,600 units. Traders can alternatively place the spot-market-stop-loss at the low for the day at the time the position is initiated. Thereafter, the position has to be traded with trailing stop-loss to control the downside risk. The margin on the futures position is approximately 19 per cent of the contract value.

Alternatively, traders can consider selling the October 330 puts for not less than 9 points. This strategy will gain from positive theta and vega. The naked short put, however, suffers from negative convexity.

Infosys: The stock closed at Rs 1,768 in the spot market. The outlook will turn positive if the stock moves past Rs 1,785. In the event, the stock could move to Rs 1,837.

Buy October futures after the stock moves past Rs 1,785 in the spot market. The position should be set up with a spot-market-stop-loss at Rs 1,748. This could render the strategy ineffective, as the risk-reward trade-off is not very attractive. Traders can alternatively place a spot-market-stop-loss at the day's low at the time the position is initiated. The position has to be traded with trailing stop-loss to protect the capital. The margin on the futures position is approximately 17 per cent of the contract value. The minimum order size is 200 units.

An alternative strategy would be to set up a synthetic long. Aggressive traders can set up this position with long October 1,800 calls and short October 1,800 puts. This strategy can be set up for 20 points credit. The position will generate nearly 60 points if the stock reaches the upside price target before option maturity. The maximum loss will be 30 points, assuming the position is closed if the stock moves below Rs 1,750. The risk-reward trade-off is, hence, encouraging.

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

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